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LIFEHACK HOW TO CREATE A BUSINESS EMPIRE QUICKLY
In 1851, a promising businessman Isaac Merritt Singer and his companion in the United States founded a company that, after a series of internal corporate changes, was called The Singer Company. The company successfully engaged in the manufacture and sale of sewing machines, and already in 1863 the corporation reached record sales figures of 20,000 at that time. per year. However, Isaac Singer understood that this was not the peak, but only the beginning of the formation of a powerful business empire. To increase the quantity of goods sold and improve the quality of its service, The Singer Company began to conclude agreements with its partners, according to which the latter were granted rights to sell and service Singer’s sewing machines. In a relatively short time, the corporation not only significantly increased its equity, but also became the leader of its industry and entered the international market. Thus, the beginning of franchising was laid.
Since the beginning of the twentieth century, the principles of franchising began to be actively used by leading suppliers of goods and services. In many respects, thanks to franchising, the global community such business giants as McDonald’s, Starbucks, IKEA, Nike, etc. have become known.
UKRAINIAN ENTREPRENEURS STARTED TO USE THE SPECIFIED BUSINESS MODEL FROM THE BEGINNING OF 2000.
Despite this, Ukrainian legislation still does not contain a definition of the concept of franchising. However, the people’s representatives nevertheless made several unsuccessful attempts to unify international and national legislation and create favorable conditions for the development of the franchising market in Ukraine.
One of the latest initiatives is the draft law on franchising No. 7430, which was registered in parliament on December 21, 2017. The bill was included on the agenda of the eighth session of the Verkhovna Rada of Ukraine of the eighth convocation, but lawmakers did not have time to consider it.
Due to the lack of regulatory regulation of “franchised” relationships, Ukrainian business has to use various legal models to formalize cooperation with partners, in particular, the parties enter into license agreements, commercial concession agreements, joint activities and the like.
Most often, for this form of doing business, a commercial concession agreement is applied in our country, which is the Ukrainian analogue of the franchising agreement.
A COMMERCIAL CONCESSION is considered to be relations between business entities in which one party (copyright holder) transfers to the other party (user) a set of rights for the purpose of manufacturing and / or selling a certain type of product and / or provision of services. Simply put, under a commercial concession agreement, the copyright holder transfers to the user, under certain conditions, a ready-made business model.
In this case, the COMPLEX OF RIGHTS means: the right to use the objects of intellectual property rights (trademarks, industrial designs, inventions, works, trade secrets, etc.), commercial experience and business reputation.
Cooperation under a commercial concession agreement has both positive and negative aspects for each of the parties.
BASIC ADVANTAGES OF THE RIGHT OWNER WHEN CONCLUDING A COMMERCIAL CONCESSION AGREEMENT IS:
- expanding the scale of the business and increasing profits in a short time and with minimal expenses;
- reduction of financial risks while expanding the scale of the business, since such an increase occurs at the expense of the users themselves;
- occupying a leading position in the relevant industries.
BASIC ADVANTAGES OF USERS AT THE CONCLUSION OF THE COMMERCIAL CONCESSION AGREEMENT IS:
- the ability to quickly and with minimal risk start a business;
- the possibility of using intellectual property (including brand), commercial experience and business reputation;
- Permanent comprehensive support of the business by the copyright holder.
However, there are a number of risks that the parties need to know when concluding the relevant contract.
THE BASIC RISKS OF THE OWNERSHIP SHOULD BE RELATED TO:
- providing access to virtually a stranger to all the secrets of his business;
- damage to the business reputation of the copyright holder by an unscrupulous user;
- decrease in the quality of goods and / or services produced, sold and / or provided;
- the development of “franchised” relationships into competitive ones (the user can open his own business on the basis of experience and information obtained when working under a commercial concession agreement);
- the complexity of organizing and monitoring user activities.
THE KEY RISKS OF THE USER SHOULD INCLUDE:
- ongoing monitoring by the copyright holder;
- dependence on the copyright holder (financial, organizational, industrial, managerial, etc.)
- limited duration of the contract of commercial concession.
IN ORDER TO AVOID THE RISKS POSED ABOVE, IT IS NECESSARY TO PAY SPECIAL ATTENTION TO THE CONTENTS OF THE CONTRACT OF COMMERCIAL CONCESSION, WHICH IS THE BASIS FOR SUCCESSFUL DEVELOPMENT OF A BUSINESS NETWORK.
When developing such an agreement, it is necessary to take into account the territory and sphere of activity of the copyright holder, the type of goods and/or services produced, sold and/or provided, the need to obtain licenses, other permits, etc.
Since these relations are not properly regulated at the legislative level, it is important to provide all essential conditions for cooperation in the commercial concession agreement, in particular, to determine in detail:
- a set of rights that the copyright holder transfers to the user;
- rights and obligations of the copyright holder and user;
- the size and procedure for payment of all payments under the contract;
- confidentiality terms;
- terms of exclusivity;
- conditions for the organization and functioning of the user’s enterprise (choice of premises, its location, internal and external design; selection of personnel, its appearance, etc.);
- standards, conditions and procedures for the manufacture, sale and / or provision of goods and / or services;
- the procedure for monitoring compliance with the terms of the contract, compliance with the standards of the copyright holder and quality conditions;
- conditions of advertising and marketing activities;
- conditions for holding the parties to account;
- term of the contract, cases and conditions of its amendment, termination;
If certain mandatory conditions of a commercial concession agreement are quite voluminous (company network standards, business financial model, guidelines for opening a company network center, personnel management guidelines, rules for manufacturing, selling products or providing services, etc.), then it is advisable to note them as annexes, and in the text of the contract itself, make an appropriate link to them.
Only the presence of an existing business does not guarantee the successful launch of franchising as a business model. It is also necessary to think about registering rights to intellectual property rights (trademarks, industrial designs, inventions, works, etc.), creating a solid financial and industrial base, selecting experienced specialists, developing a strategy for developing a corporate network, draft contracts, standards and rules, regulations and the like. The process of launching franchising is quite a voluminous and complex process, but it can be simplified and accelerated using the help of specialists.