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Franchises: why is it so profitable to invest in them?

La Costa del Sol offers numerous options of business despite the severe economic crisis that is occurring in our country. One of the most acclaimed and a profitable option is the investment in a successful franchise. In fact, during the first semester of 2013 the number of people who decided to invest in a franchise in Spain increased by 27 % over the first semester of last year. The reason for these circumstances is the current economic situation, since investing in a Franchise provides both commercial and economic security, which “new entrepreneurs” are currently willing to obtain.

Among the most important advantages of investing in a franchise, we should emphasise the great opportunity to start a business in which its network of products and services distribution has been previously developed and implemented. Therefore, the investor is saving the expenditure on such distribution as well as on a professional team who should be responsible for developing the action plan of the company.

On the other hand, when you invest in a franchise with prestige and renowned experience, the investor will have clients, and potential clients, who know the product or service provided, clients who are satisfied and confident about the quality and, most importantly, willing to spend their money on it. Thus, through this type of investment the “entrepreneurial beginnings”, where the entrepreneur is engaged in the creation of client networks and in seeking customers who will consume the product or service, are avoided.

It is true that the investor must meet certain commitments that he agrees within the commercial contract and which, somehow, restrict his freedom of entrepreneurial action. For instance, he will not determine the prices, image or marketing campaigns for the brand he represents. Moreover, the franchisee is obliged to use the intellectual property rights of the franchise exclusively for the performance and development of its activity.

Nevertheless, the benefits of investing in a franchise are considerably greater than its disadvantages, considering the economic situation of businesses in Spain. One of the most significant benefits for the investor is the duty of the franchisor to provide him with non-misleading and truthful information about the franchise, including data such as its structure, characteristics, experience or branches – Article 3 of the Royal Decree 201/2010, of 26 February, establishing the exercise of the franchised business and the communication of the franchise data records to the Franchise Registry. Thus, the franchisee has the opportunity to start his business with a detailed report on the commercial and economic idiosyncrasies of the franchise he is investing in and being aware of the risks that may arise.

The best way to avoid risks is to hire experienced and high-quality legal advisors to carry out a study of the characteristics of the business and take part on the drafting of the “Franchise Agreement”. This agreement is a contract that obligates and binds both the franchisor and the franchisee regarding the business relationship that they are undertaking. Therefore, the parties should be guided by professionals who will ensure that the terms and contents of this Agreement (such as: rights and obligations, liability, termination of the agreement, etc.) respond to their needs and defend their interests.

Finally, it is necessary to highlight that the new measures included in the Entrepreneurs Act –passed by Government Law 14/2013, of 27 September to support entrepreneurship and internationalisation – enhance the advantages of investing in a franchise, measures such as the reduction of the taxes to be paid by the entrepreneurs (under 30) to 50 Euros per month, during the first six months, or the possibility for entrepreneurs to pay VAT once the invoices are paid to them.

Do not hesitate to contact Lexland Lawyers if you would like to learn more about the many benefits franchises offer you.

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