In the difficult current economic climate, many well established businesses are struggling to expand because it is almost impossible to access external financing. One way of ensuring business growth may be through converting the business into a franchise, as this allows rapid expansion using others' capital.

Date 15/01/2015

Of course, franchising is not an option for all businesses, but if your business:

  • Has enough experience and proof of success
  • Is both commercially and financially appealing
  • Has a good profit margin
  • May be replicated
  • And if it is generating interest from other business owners who have suggested opening branches in other areas, it might be time to consider franchising.

The requirements for franchising your business are varied:

  1. The main features or selling point of your product must be original. It should stand out in terms of its name, brand and image.
  2. You should establish how and with what your business works, with the aim of distinguishing it from other similar companies.
  3. You must be able to standardise the procedures which have led to the success of the business and this standardisation must be transferrable.
  4. You must have clearly defined and transferrable “know how”.
  5. You must make sure that your business generates enough profit to pay the work force and make a reasonable return.
  6. The business must be based on stable products which ensure the proper functioning of the company, rather than on something momentary or short-lived.

In terms of the formal requirements, there are some legal and mandatory steps to follow to allow you to transfer the rights of use to your products or services.

The necessary legal documentation to franchise a company is found in the Royal Decree 201/2010, which regulates the undertaking of commercial activities and communication of information to the Register of Franchisers.

The first step would be to register the brand in the Spanish Patent and Trademark Office (OEPM).

Once this has been carried out, the business owner should first of all register himself in the Register of Franchisers. Their entry in the Register may be used by future franchise holders to look up any company information. In accordance with European legislation and Spanish law, a business must be registered in this organisation to be able to be franchised.

Requests to be registered in the Register of Franchisers must be presented to the relevant authority of the autonomous region where the company is located or directly to the Register if the relevant autonomous region does not request prior communication. The request must be accompanied by at least two of the following documents or pieces of information:

  • Information about the franchisers: name or trade name of the franchiser, address, registration information from the Register of Companies if applicable, and the N.I.F. or C.I.F.
  • Industrial or intellectual property rights.
  • Description of the company to be franchised, which will include a report explaining the company activity, stating the number of franchise holders in the network and the number of branches, distinguishing between those directly run by the franchiser and those which operate under the franchise system, and indicating the town and province in which they are located. The length of time that the company has been franchised will also be indicated, and its own branches and franchises will be specified, as well as franchises that have left the network in Spain in the last two years.
  • If the franchiser transfers a part of the franchise to a franchisee, they must present documentation proving their trade name, address, legal form and duration of the main franchise agreement, as well as the assignment contract with the franchisee.

Within two months after the request, the company will appear on the official website of the Ministry of Economy and Competitiveness, and the process of franchising the business may begin.

Juan Carlos López-Morago - Balms Abogados Madrid

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