Hamilton Pratt

Joint Venture

In order to overcome some of the disadvantages of a subsidiary/branch operation franchisors often consider setting up a joint venture particularly in “medium” risk territories. The partner in such a joint venture would be an existing business or entrepreneur in the target country with knowledge of the market in that country.

There are substantial disadvantages to a joint venture operation, which are not unique to franchising and relate to such matters as: who has control; what functions are performed by each of the joint venturers; what is to happen should there be a dispute; what will be the dividend policy of the joint venture (one party may be seeking capital appreciation whilst the other may be looking for an income stream) and how will broad/shareholder approval/consent to major decisions be made; but the advantages are that a joint venture does enable a foreign franchisor to tap into local knowledge and, perhaps, local funding whilst retaining control or involvement in the operation and taking a larger share of the profits than would be the case in a “pure” master franchise or development agreement. Often franchisors strengthen their position by requiring the joint venture company to enter into a master franchise agreement, and possibly also a trade mark licence, in respect of the trade mark to be used in the franchise business.