I want to start my own business but I don't really want to own a franchise. I know a franchise in my local area that is similar to the kind of business I want to operate. I'm thinking it might be a good idea to purchase the franchise for a small period of time and learn all I can about running this type of business then go out into my own similar business. How can I do this?
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Answer by LegalEagle™ Staff, Melbourne 3000 VIC
- You need to be very careful when intending to open a business that would be in direct competition with a franchise you are or were involved in. Copying a franchise and setting up in direct opposition to it can be considered 'franchise piracy'.
- Usually the franchise agreement will prohibit franchisees from establishing, operating or holding an interest in a competing business while they are franchisees and for a set time after ceasing operations as a franchis
- These clauses in the agreement are referred to as 'non-compete' clauses or restraint of trade provisions.
- You should be aware that approaching your new business in this way could open you up to litigation by the franchisor.
- If your end goal is to own your own business in a certain field it may be advisable to simply take that path rather than first owning a similar franchise. This way you can undertake your own research and put your own flair and passion into developing your own image. You can then feel free to compete with the existing franchise without opening yourself up to potential liability for breach of a non-compete clause.