Home – New Forums Money matters Master franchise fee and structure

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  • #990729
    AstroboyChorong
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    Hi,

    Im opening restaurant and currently drafting the shareholders agreeement.

    The co-founder proposing
    For example if we sell the franchise.. The franchise fee (100K)

    First 50K is distributed according to our shares in the company

    Second 50k.
    50% of this goes to the co-founder which is the chef as well.
    5% is the comission seller
    The rest according to our timelog excluding the chef

    And then the chef gets annual salary package on top of this

    Just wondering the fee proportion

    And how to draft royalty fees

    Is the proposed structure reasonable?

    #1178326
    NickKaro
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    I would suggest drafting any exit clause net of all brokerage, legal costs and associated costs. It isn’t a great idea to put in that 5% will go here, etc. when you cannot be sure of the costs in the future. Also, what happens if you sell for 200k? 500k? How is the time-log defined and the mechanism for distributing the remaining amount – how far back do the time logs count? From day 1?

    In this regard, shareholders agreements (much like any legal agreement) need to be future-proof and water-tight, if you do not have experience in drafting I would strongly advise that you approach a lawyer to draft it for you – particularly with a number of parties involved.

    Regards
    Nick

    #1178327
    AstroboyChorong
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    Hi Nick,

    Thanks for your reply.

    All legal costs, associated costs goes to expense and are paid from the money that we put in as capital.

    Our exit clause is actually operating for 2 years, after that you can sell the shares to the shareholders based on the shares they hold. So first thing we will offer to the highest holder, if he doesn’t want to buy, then offer the next shareholders, after that 3rd parties with shareholders approval.

    If the master franchise fee is more than what we forecast, I think we can go through as what we will draft. So we need to draft franchise agreement that can be used through most situations. the 100k i mention is franchise fee, not including future royalties fees etc. and this is only fees, not including set-up cost etc. We actually forecast around $60K, the number is only for easier calculation.

    We have lawyer drafting our agreement and accountant for taxation advice.

    I will consider the 5% from 100K (actually, it’s 10% from the 2nd proportion of 50k) and probably propose to put it as operation expense as commission?

    The time-log is ambiguous, that’s why I put it here and ask feedback from others.
    So far we put the percentage as the contribution until day one. as per today.
    1 person gets 16%, 2 gets 8%, 2 gets 4%, and 1 person gets 0% as he is foreign investor (no contribution). This is what he propose. But I don’t agree with this.

    I will go meeting again with them this sunday. What I have in mind,
    the first 50K shared according to shares proportion as orginal.
    2nd 50k
    40% goes to chef (co-founder)
    10% commission (needs to be redraft)

    50% (for example 25,000 in this case) goes to the rest exclude chef (with 2nd most contributor with extra percentage) – $1875 (7.5%) per person x 5, $3125 for the sixth person (12.5%)

    This is my first business that actually have vision to go forward to become a franchise in the future. I have no knowledge in the money proportion. Please advise. Thank you

    and for profit, I believe we will be paid dividend according to our shares, we haven’t discussed whether the co-founder will get extra or not. That’s why I need extra information as much as possible, as currently the co-founder has more bargaining power and he pushes us when discussing sensitive topics like this. including his salary, which is quite high and I will push that down to market rate.
    the fact that he gets 25/20% from the 2nd proportion 20K, I think that is already a appropriate amount to reward his work as co-founder and starting up this business.

    #1178328
    NickKaro
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    Hi “Astroboy”

    Unfortunately this is far beyond general advice so unfortunately I am not really in a position to advise further on this forum.

    Given you have engaged a professional accountant and lawyer these are issues they should be advising you on quite easily.

    Regards
    Nick

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