Business partnerships — the advantages of cooperation and favourable terms
First, a little theory:
- A partnership is an equal and mutually beneficial relationship between two parties within a single business, with equal responsibility and freedom of action. Partners jointly develop the business, make decisions, and bear responsibility.
- A franchise is an agreement between a franchisor (brand owner) and a franchisee (entrepreneur), whereby the franchisee operates under the franchisor’s brand, using its technologies and methods. However, the franchisee must adhere to the franchisor’s standards, requirements, and regulations, which limits their freedom of action. Franchises are often perceived as working under someone else’s rules, with limited equality between the parties.
- A franchise aims to scale and grow the franchisor’s business through network expansion, where the franchisee pays a lump sum fee and royalties for brand use and support.
- A partnership lacks strict regulations from one party, offering greater independence and equality. In a franchise, the partner operates under the franchisor’s rules and receives their support.
In other words, a partnership is a collaboration on equal terms, while a franchise is a business model that transfers rights to use a brand and business system, requiring adherence to the franchisor’s standards and imposing more restrictions on franchisees.
Partnership or Franchise? Key Questions
What are the benefits of a partnership compared to a franchise?
- Freedom of decision and independence. In a partnership, you manage your business without strict restrictions and standards, unlike a franchise, where you must strictly adhere to the franchisor’s rules.
- No mandatory financial payments. No need to pay lump sum fees or royalties, which reduces start-up and ongoing costs.
- Equality and shared participation. Partners are equal in decision-making and share responsibility and profits equally, while the franchisee is limited by the contract.
- Flexibility in choosing suppliers, locations, and strategies. In a partnership, you can quickly adapt to market changes, innovate, and choose development paths without restrictions.
- Less dependence on someone else’s brand. While a franchise offers recognition, a partnership allows you to build your own unique brand and business model.
At the same time, a franchise offers its own advantages: a recognizable brand, a proven business model, marketing support, and reduced risks, which are important for newcomers. If you value independence, a partnership is more profitable; if you want support and a more predictable business, a franchise is a better fit.
What are the main differences in liability between a partnership and a franchise?
- In a partnership, responsibility is divided equally between the partners or by agreement. Partners jointly manage the business, make decisions, bear financial risks, and are jointly responsible for the success or failure of the business. Each partner is assigned their own area of responsibility, and all partners are co-owners of the business with full liability for its results.
- In a franchise, the franchisee’s responsibility is limited to the terms of the agreement with the franchisor. The franchisee agrees to conduct the business strictly according to the franchisor’s established standards and rules, including the use of the trademark and business model. The franchisee’s primary responsibility is to comply with the agreement, manage operations, pay franchise fees and royalties, and monitor the quality of service and products in accordance with the franchisor’s requirements.
- The franchisor is responsible for brand development and maintenance, franchisee training, marketing support, and monitoring compliance with standards, but is not involved in the day-to-day management of the franchisee’s specific business.
- In a partnership, risks and management are shared and negotiated jointly, whereas in a franchise, the franchisee operates within a more limited framework, lacking full control over the business and bearing risks within the limits of their contractual obligations.
Thus, a partnership implies a broader, shared, and flexible distribution of responsibility, whereas in a franchise, the franchisee’s liability is formally limited by the agreement with the franchisor and clear business standards.
How responsibilities are distributed in partnerships and franchises
In a partnership, responsibility is allocated individually and flexibly, as agreed upon by the partners. The partnership agreement typically defines the roles and responsibilities of each partner, including responsibility for management, finance, marketing, legal matters, and other areas. Partners make joint decisions, have equal voting rights, and share profits and losses proportionally to their respective shares. They are obligated to cooperate, act in the best interests of the partnership, and ensure transparency in their relationships. Decisions on key issues are made by majority vote or unanimously, depending on the agreement.
In a franchise, responsibility is clearly and formally assigned. The franchisor provides the brand, standards, technology, and support, but is not involved in operational management. The franchisee is obligated to strictly adhere to established rules, ensure the quality of products and services, pay franchise fees and royalties, and be responsible for the day-to-day operation of the business. The franchisee’s liability is limited to fulfilling the terms of the franchise agreement and adhering to the franchisor’s standards.
Thus, in a partnership, responsibility is distributed among all participants by agreement and flexibly, while in a franchise, the franchisee’s responsibility is limited by established rules and controlled by the franchisor.
