Is franchising legally defined in the UK?

Franchising is a powerful route for business expansion, but it operates in a unique legal landscape – one that’s far less regulated than in other countries.

So, what does UK law actually say about franchising? How is a franchise defined? How does it differ from a simple licence agreement or business opportunity? Our experts explain…

Are there any legal definitions of a franchise?

According to Vicky Wilkes, head of legal at Aston Villa Football Club, “Under English law, there is no legal definition of a ‘franchise’.”

She notes that while there are definitions from the European Commission and the British Franchise Association (BFA), these are not legal definitions.

“In the UK, franchising is not subject to any particular legal regulation, and so the need to have a definition is less important.”

The BFA plays an important self-regulatory role. “Although not a statutory body, it does seek to regulate the franchise industry in the UK to the extent that franchisors are members or associate members of the organisation,” Wilkes adds.

Legal frameworks affecting franchising

There are, however, some legal frameworks that may affect franchising. “The Trading Scheme Act 1996 was brought into force to try and address the then-growing issue of pyramid selling,” Wilkes explains.

Although most franchise agreements technically fall within its scope, “they are able to benefit from either of two exclusions. This is namely that they are part of what is known as a single-tier trading scheme or all franchisees in the network are registered for VAT.”

Franchise agreements must also comply with general laws such as the Unfair Contract Terms Act 1977. This requires that any contractual limitations on liability are reasonable.

There are also legal protections for franchisees under common law. “If franchisors provide incorrect information to a prospective franchisee to induce that franchisee to enter into a franchise agreement, that could well amount to a misrepresentation claim,” explains John Pratt, senior partner at Hamilton Pratt.

He adds that “the franchise agreement will contain obligations on the franchisor which, if the franchisor fails to comply with them, could give rise to a breach of contract claim.”

English courts have also shown a growing willingness “to imply good faith obligations into franchise agreements,” improving fairness and trust within the sector.

Business format franchise

Vicky Wiles explains that franchising is a broad concept, encompassing various arrangements. The most familiar model is the business format franchise.

In this model, “a franchisor grants a franchisee a licence to carry on the same type of business as the franchisor under its name, usually at an agreed location.”

At its core, a franchise opportunity typically includes:

● Permission to operate under the franchisor’s brand name

● The franchisor’s right to exercise an element of control

● The franchisor’s obligation to provide support

● The franchisee’s obligation to pay ongoing fees

Is granting a franchise the same as granting a licence to trade under another company’s name?

This is a common question, and the answer depends on how much control the franchisor exercises.

John Pratt says, “A big part of franchising is the franchisor’s brand. Franchisors do, or should, work very hard at ensuring their brand is well recognised in the marketplace in which they operate. That’s what franchisees are paying for.”

He explains that while franchising involves a licence element, it goes much further. “From a franchisor’s perspective, if you’re allowing somebody to use your brand and present themselves as a franchisee, then clearly a simple licence to use your trade name is not enough.

“Franchisors regulate to a very high degree every aspect of the franchisee’s business to ensure the reputation of the franchisor is maintained.”

Vicky Wilkes explains that “there is no significant legal difference between granting a franchise and granting a licence to trade under another company’s name”. However, she notes that franchising is “a particular and complex form of licensing.”

In practice, “most franchise agreements have a high degree of control provisions within them”. This is unlike a general licence to trade, which “may be a one-off arrangement, possibly part of a company restructuring or sale of business assets.”

Shelley Nadler, legal director at Bird & Bird, summarises it like this: a business format franchise “involves not merely the licence of a trade mark […] but the preparation of a blueprint for a successful way of carrying on a business.”

This blueprint “should eliminate so far as possible the risk inherent in opening a new business” and provide “initial and ongoing training, advice and assistance to the franchisee.”

In short, while licensing gives limited rights to use intellectual property, franchising provides a complete business model. This includes systems, support, brand and a proven operational method.

Is there any legal difference between a business format franchise and a business opportunity?

Nadler clarifies that “the term ‘business opportunity’ is a very vague and wide term. It can cover just about any type of business venture.”

By contrast, “a business format franchise is the grant of a licence by one person (the franchisor) to another (the franchisee). It entitles the franchisee to trade under the trademark/tradename of the franchisor and to make use of an entire package.

“This comprises all the elements necessary to establish a previously untrained person in a business and to run it with continual assistance on a predetermined basis.”

What legal structures do franchisors and franchisees use?

According to Pratt, “The majority of franchisors are limited companies – only one or two franchisors operate as a partnership.”

This is because limited companies reduce personal liability. Franchisees, on the other hand, “usually have a free hand to decide whether to operate as a sole trader, partnership or limited company.”

While limited companies offer protection when dealing with third parties, “franchisees will be required to guarantee to the franchisor the obligations of the limited company,” Pratt notes.

He summarises the three main structures:

● Sole trader – simple and low-cost, but personally liable

● Partnership – shared ownership and liability

● Limited company – greater protection, but higher costs and administrative work

In summary

Franchising in the UK exists in a flexible but largely self-regulated environment. There’s no formal legal definition of a franchise, nor specific legislation governing it. However, the British Franchise Association plays a vital role in maintaining ethical standards.

As our experts make clear, franchising is much more than a simple licence to trade – it’s a structured, ongoing business relationship built around brand, support and shared success.