Franchising as a Corporate Form Can Protect

Posted Fri, 2009/02/27 - 12:15 by michael webster

An answer to protect international assets and firewall liability from cascading into insolvency may well be the corporate form of franchising. Take the example of Italian milk multinational, Parmalat, that covered up the losses of its South American operations by clandestinely diverting funds using offshore entities. The problem is that the principal-agent relationship exposed the brand to the misdeeds of its overseas offices.

Franchising should be recognized for its value as, a different corporate form, solving a number of the principal agent problems inherent in expanding service based firm, such as accounting, law, or some other consultancy.
Franchising, in general as a corporate form, provides for a centralized authority which protects the trademark, leaving local decisions to the individual franchisee. This is a very high level view, but we should not lose sight of its importance - asset insulation of individuals operating under a common trademark. - BizOp News

The key in franchising and limiting liability is to have the local interpretation of operating standards resolved by an independent mediation/arbitration firm. The independence is required, otherwise operational control will pierce the franchisor/franchisee veil and expose it to principal-agency liability.

Read the full analysis at BizOp News

Franchise topic:
- legal

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The International Association of Franchisees and Dealers was formed in January, 2010. Currently, I am the Chair of the Strategic Committee which is overseeing the development of the IAFD and its business plan.

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