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What are the main differences between a Franchise and a Joint Venture

Both the franchise and the joint venture are business partnership systems. The greater or lesser advantages and fundamentals of both options will be determined by numerous factors: investment perspectives and profitability, participation in management, responsibility and risk of action, capabilities and operational obligations, etc.

 A Joint Venture is a strategic alliance, a joint investment agreement and joint venture between two or more companies that may have as its object the production and / or commercialization of certain goods and / or services, or the opening of new national or international markets.

On the other hand, a franchise is a commercial association contract between two or more legally and economically independent companies that will have as its object the commercialization of certain products or services through the exploitation by the franchisee of a business model or commercial activity that the franchisor comes Developing previously with sufficient experience and success and comprising (i) the assignment of trademark use rights, (ii) the transmission of business experiences and know-how and (iii) the provision of continuous technical and commercial assistance.

In the franchise the franchisee acts at his own risk and is the one that undertakes the investments and faces the costs of exploitation and business management.

How a Franchise is established, that is, they work, how they operate, what types or models exist, important technical, operative, and legal aspects.

The franchise is an associative agreement between independent parties that interact in a free competition framework, hence it is the defense of this competition that will fundamentally govern the business relationship regulated by the contract that both grant.

Apart from these prohibitions (black clauses), the franchise agreement is an agreement between parties and can be freely agreed upon.

The franchise is a triple strategy – business, partnership and growth – that must be defined through the realization of a project, as well as its implementation in documents – informational, contractual and operational – legally required.

How a Joint Venture is established, that is, they work, how they operate, what types or models exist, important technical, operational, and legal aspects.

It is an agreement of a business alliance and there are no legal requirements that go beyond those established by the corporate legislation itself. The joint venture agreement will usually consist of a mere business collaboration contract, although it may be used to set up a Temporary Business Union (UTE). In any case, the companies maintain their independence without there being a merger between them or the absorption by someone.

The financial results of the joint venture will affect the profit and loss accounts of the companies in the terms in which they have agreed or, in the case of the creation of a joint venture, in the latter’s income statement.

What are the advantages and disadvantages of each model, when one model or the other is more appropriate?

Both the franchise and the joint venture are business partnership systems. The greater or lesser advantages and fundamentals of both options will be determined by numerous factors: investment perspectives and profitability, participation in management, responsibility and risk of action, capabilities and operational obligations, etc.

While in the franchise, the entrepreneur does not make investments in the creation of sales networks (beyond those that correspond to perform in its own structure of assistance and support); its results will be limited to those that derive from the financial obligations plan that it determines for its franchisees (entry rights, royalties, supply margins, fees, …); does not intervene directly in the management of the points of sale (assumed by the franchisee with the assistance and brand of the franchisor); it does not assume management risks (although in certain cases this responsibility can be handled subsidiarily) and will not have to contribute and face the structures and operating costs (this will correspond to the franchisee), in a joint venture the opposite occurs: companies jointly assume investments,

Depending on the company’s vision to face one or another business and the way in which it wants to develop it, you can opt for one formula or another. In the case of international developments, both are very usual internationalization formulas. While one, the franchise, you can be ideal to cover a specific market (through international franchise agreements or master franchise agreements – if a sub-franchise is admitted and necessary in the target market-), the establishment of an alliance with a local partner it can be ideal for other different markets. In any case, legal, financial and logistical factors will fundamentally determine the convenience of one or the other system.

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