WHAT IS LICENSING AGREEMENT?

29 March 2023

FBK&PARTNERS

WHAT IS LICENSING AGREEMENT?

A licensing agreement is a full or partial transfer of an intellectual and industrial right for a fee. Licensing agreements, which do not have a legal definition and regulation, fall into the category of unnamed agreement due to these characteristics. Although they are an unnamed agreements, licensing agreements, which have an intensive application area, are considered to be typicalized.

Trademark Licensing Agreements

Trademark and patent agreements, which are established by mutual agreement of wills, give rise to a continuous debt relations to the parties since they are subject to a debt that does not end with usage. As long as the agreement exists, the rights and obligations of the parties will exist. The main obligation of the licensor is to ensure that the licensee uses the trademark within the scope specified in the agreement. It should be noted that only the authority to use is transferred, there will be no partial or complete transfer of any rights. The return performance may not be performed if it is explicitly stated in the agreement, and licensing agreements without return performance are called free license or free of charge license.

Subject Matter Of Trademark Licensing Agreements

Trademark licensing agreements are agreements under which the trademark owner grants the right to use its trademark to the licensee or company under certain conditions. The agreements set out the specific terms, duration, fees and other related provisions for the use of the trademark. Trademark agreements allow companies that own trademarks to license their trademarks to generate revenue and licensees to market their products or services by leveraging the prestige of the trademark. The agreement must be drafted and enforced in accordance with established conventions, as both parties must act in accordance with the agreement.

Patent Licensing Agreements

Patent licensing agreements are legal agreements that allow individuals or companies to use patented technology that belongs to another party. These agreements are essential for encouraging innovation and commercializing new products and services. Patent licensing agreements serve as a means for patent holders to profit from their inventions, while at the same time allowing others to use their intellectual property in exchange for payment of compensation.

What is Patent?

A patent is a legal document that grants the patent holder exclusive rights over his or her invention for a certain period of time. The patent holder has the authority to decide how to use the patent, including producing, selling or licensing the technology subject to the patent. It is common for patent holders to assign the use of their patent rights to companies or individuals. The main reason for these occurrences is that sometimes patent holders lack the resources or expertise to produce or commercialize their inventions and therefore may license the patent to others through a patent licensing agreement.

Types of Trademark and Patent Licensing Agreements

Although there are many distinctions between trademark and patent agreements, it can be said that the most basic distinctions are simple license and exclusive license.

An exclusive license is a type of license where the exclusive rights of the licensor over the license are not transferred to the licensee. Such licensing agreements allow the licensee to use the trademark or patent for a specific purpose, but the licensee cannot use it for any purpose other than its intended use. For example, a licensing agreement may grant a company the right to use a trademark or patent for a certain category of products, but it does not allow the licensee to use the patent or trademark for other products.

A non-exclusive license (simple license) is a type of license where the licensor transfers some or all of its exclusive rights in the trademark or patent to the licensee. Such licensing agreements allow the licensee to use the license in a wider area and to make other uses of the license. However, the licensee is obliged to pay a certain amount of fee for the use of the license and the term of the license is limited. Both types of licenses must contain certain conditions to protect the licensor’s rights. These conditions may include the duration of the license, the license fee, the use of the mark, and the terms of expiry of the license.

Trademark and Patent Agreements According to the Type of Licensee

Trademark and patent agreements are categorized into two types according to the nature of the parties. A individual license is a type of licensing agreement is closely attached to the individual and cannot be transferred to another person. In the business license, the licensee continues to own the license even if the business is transferred.

Contractual License (Discretionary Trademark and Patent Agreements)

Within the scope of the principle of freedom of contract, the licensor, trademark or patent owner has the right to allow others to use the product subject to the license to which it has the exclusive right. Discretionary trademark and patent agreements, on the other hand, are a type of license in which the exclusive right holder permits the use of its rights through a contract. Such agreements are concluded by the licensee at its free will and are valid only under certain conditions and limitations.

Mandatory Trademark and Patent Agreement

A mandatory license, which is one of the exceptions to the principle of freedom of contract, obliges a party to enter into a contract with legal authority. As seen in the TRIPS articles, it is stated that the mandatory licensing agreement is an appropriate prevention against abuse of intellectual property rights by right holders. In Turkish Law, since the mandatory license is subject to some legislative regulations, its establishment and implementation depends on the legislative provision.

Trademark and Patent Agreements by Field of Use

In a license to use, the licensee only has the right to use the product. They will be unable to sell or produce. In a production license, the licensee is granted only the right to produce, but not the right to use or put up for sale. The licensor will not be able to use these produced materials without purchasing them. A sales license is a license granted by a producer or owner to another person or entity to sell a product it has produced. This license is granted under conditions and for a fee set by the producer or owner and is usually valid for a certain period of time. Sales licenses are usually in the form of a written agreement and cover matters such as the use, sale, marketing and distribution of the product.

Production License

A production license is a type of license that grants the licensee only the right to produce the product subject to the license. However, the rights to use and sell the manufactured goods will not be within the scope of the rights granted by this license. This will also apply to service marks, where the licensee offers a good to consumers as part of a service. The licensor is obliged to purchase the products manufactured by the licensee.

Sale License

A sale license is a license that allows the licensee to sell goods provided by the licensor or a designated third party under the licensor’s trademark. The sales license is frequently embodied in the special types of exports and imports. If the licensee purchases the license and sells the goods under its ownership, there will be no need to establish a licensing agreement. This is because the sale of the products will exhaust the right to a trade license.

Geographically Restricted Trademark and Patent Agreement

A license may be granted for a specific geographical area. Therefore, the licensee will only have the right to use the trademark or patent in the geographical area specified in the agreement. If the trademark or patent is used outside the specified geographical area, the absolute rights of the licensor may be enforced against the licensee. The key issue here is to clearly state in the agreement that the use of the license is limited to certain geographical areas, otherwise the trademark or patent license will be valid in the whole country.

Sub License

A sublicense is when the actual licensee authorizes another person to use the trademark or patent in accordance with the licensing agreement. However, the licensee must specify its authority to grant a sublicense in the agreement or it must be understood from the content of the agreement that it has the authority to grant a sublicense. The scope of the sublicense depends on the scope of the main license and the sublicensor is the licensee. The sublicense agreement is subject to the terms of the main licensing agreement, and the sublicense agreement will also terminate if the main licensing agreement terminates.

How Licensing Agreements are Concluded?

Pursuant to the general provisions of the Code of Obligations, in order for a licensing agreement to be concluded, an offer must be made and a declaration of acceptance must be communicated to the other party in accordance with this offer. The mutual agreement of the parties on the main terms of the agreement is also an obligation for the conclusion of the agreement.

Elements of Trademark and Patent Agreements

The essential elements of a licensing agreement are the subject matter of the license, the license fee and the licensor’s provision of the right subject to the license. In trademark and patent agreements, the scope of use subject to the license must be specified. The licensor must undertake the use of the right subject to the license and the license fee must be determined. It is also possible that the license fee may be something other than money, but it is important that mutual payment shall occur.

Form of Trademark and Patent Agreement

Since the transactions of legally registered trademarks are subject to written form, trademark and patent agreements must also be made in writing in accordance with this validity requirement, otherwise they are deemed invalid. However, in the absence of a written agreement, if the parties have substantially fulfilled their obligations, the agreement will be deemed valid and neither party will be able to plead the invalidity of the agreement.

Registration of Trademark and Patent Agreement

The registration of trademark and patent agreements in the registry is a non-compulsory transaction with a declaratory effect. However, the important point here is that the invalidity of the agreement cannot become valid with registration. Since registration is mandatory for common trademarks, the license must be registered in the trademark registry in order to grant a license. In order to register the license, a petition containing the registration number and trademark name, a notarized licensing agreement and written proof of payment of the fee are required.

Efficacy of the Registration of Trademark and Patent Agreements

Trademark and patent agreements cannot be asserted against bona fide third parties if they are not registered. However, if the license is registered, it may be asserted against the individuals who subsequently assign the license right. The rights arising from the trademark and patent agreement cannot be asserted against bona fide third parties who have taken over the license right before the registration of the license in the registry. The registration of the license may be requested by both the licensee and the grantor.

Provisions of the Agreement – Obligations of the Parties

A trademark and patent agreement is a contract in which the licensor makes its rights available to the licensee and in return, the licensee agrees to perform the performance owed by the licensor in exchange for the use of the rights. The rights and obligations between the parties may be determined as the parties wish due to their rights arising from the principle of freedom of contract, provided that they are not contrary to the provisions of the relevant law. However, as in every legal transaction, there are also obligations arising from the principle of honesty. The content of the contract must be prepared in accordance with the law and the ethical rules.

Obligations of the Licensor

A trademark and patent agreement is based on the licensor’s obligation to allow the licensee to benefit from the trademark and patent right. This obligation is not limited to permitting the use of the trademark and patent; the licensor must not prevent the licensee from using the license to the extent specified in the agreement, must not cause difficulties, must tolerate the use and must help the licensee to get rid of third parties claiming rights.

Obligation to Enable the Licensee to Benefit from the Trademark or Patent Right

The primary obligation of the licensor in a trademark and patent agreement is to undertake the obligation to enable the licensee to use the trademark or patent. Thus, the licensee does not face the right of prohibition arising from the trademark or patent right. The licensor’s obligation is limited to the terms and duration specified in the agreement. The licensor’s obligation is not limited to allowing the licensee to use the trademark or patent, but also includes the obligations not to hinder the use, not to cause difficulties, and to save the licensee from the claims of third parties. In the context of this obligation, the warranty provisions of the contract of sale may be applied to the licensing agreement by analogy.

Licensor’s Obligation to Guarantee

The main obligation of the licensor is to ensure that the licensee benefits from the trademark or patent right. For this purpose, the trademark subject to the agreement must be valid and in existence. Even if the contract between the parties does not contain a guarantee obligation regarding the existence of the trademark right, the licensor’s guarantee in this regard should be accepted.

Along with the obligations to protect and support the trademark and patent, the licensor should try to protect the market position of the licensee who acts in accordance with the agreement. However, the licensee has no obligation to protect the trademark or patent through advertising, unless expressly provided in the contract. In a simple licensee, the licensee has the right to sue for the acts of third parties that constitute infringement of the trademark or patent. This obligation applies even if it is not specified in the agreement.

Obligations of T the Licensee

When executing a licensing agreement, the license fee must be paid as a fulfillment of the obligation. However, in free licensing agreements, it may be agreed not to pay a fee for the use of the license. However, unless it is clearly understood from the wording of the agreement, it will be necessary to determine the license fee. As long as it is mutually agreed, licensees may fulfill their obligations with any goods other than money.

In licensing agreements, in addition to the primary obligations of the licensee, there may be ancillary obligations such as confidentiality, ensuring quality standards, advertising and accountability.

CONCLUSION

Trademark licensing agreements and patent licensing agreements are an important instruments to ensure a beneficial cooperation between the parties. Trademark licensing agreements grant the licensor the right to use the trademark, while helping the licensee to increase the value of the trademark. Patent licensing agreements, on the other hand, give the patent holder the opportunity to generate income from their inventions, while helping to develop technological innovations and grow businesses.

When an agreement is prepared, it is important to specify the rights, obligations and responsibilities of the parties. For this reason, legal support during the preparation and implementation of the agreements is necessary for the validity and enforceability of the agreements by the parties.

Licensing agreements are a vital tool for the development of commercial activities and contribute greatly to the commercial activities of businesses. However, proper drafting of the agreements, protection of the mutual interests of the parties and proper follow-up and management during the implementation of the agreement are also essential.

THE PROCESS OF REPAYMENT OR CANCELLATION REQUEST

20 March 2023

FBK&PARTNERS

HOW DOES THE REPAYMENT OR CANCELLATION REQUEST PROCESS WORK?

The process of repayment or cancellation in cases overcalculated or overcharged customs duties is covered by Articles 211 and 217 of the Customs Law. Although it is an administrative remedy, the repayment and cancellation process is essentially a dispute resolution procedure that requires disputes to be resolved without resorting to the judiciary. Any customs duty repayment or cancellation is not within the scope of administrative appeal. Only the cases of overestimation or collection of customs duties, stamp duties and TRT banderol fees on import are within the scope of repayment and cancellation. The application for the repayment and cancellation request must be made within three years from the date of notification of the relevant duties to the taxpayers. Due to this nature, the customs duty, which is an administrative decision, is subject to the objection procedure under Article 242 of the Customs Law.

What is Repayment and Cancellation?

What is meant by repayment and cancellation is discussed within the scope of Article 210 of the Customs Law. For this reason, the literal interpretation of the law will be taken into consideration in the doctrine and application principles. Repayment, as can be understood from the meaning of the word, is the return of the overpaid tax debt, which has been notified to the taxpayer and overpaid tax debt, to the taxpayer by the administration related to the objection made. During the repayment appeal process, it will not be possible for taxpayers to repay the over-calculated but partially paid tax debts.

In case of cancellation of tax debt, it is essential that the relevant debt is notified to the taxpayers but not paid. It is the cancellation of the obligation to pay the debt partially or completely due to the provisions written in the Customs Law and related laws.

Relationship with Other Administrative Applications Under the Turkish Customs Law

The Customs Law, which is also an administrative procedure law, includes customs duties as a special subject and includes administrative appeal procedures explaining the disputes that may arise regarding customs duties. In addition to the application for the repayment and cancel of customs duties, Article 6 of the Customs Law explains the procedural procedures for applications for decisions and Article 242 explains the procedural procedures for appeals. The reconciliation application, which was introduced to the legislation in 2011 and is an administrative tool, is not a remedy related to the refund or cancellation objection applications, and therefore will not be explained within the scope of our subject.

Scope of Repayment and Cancellation

It is understood from Articles 210, 221 and 214 of the Customs Law that the repayment and cancellation are within the scope of the taxes that taxpayers are obliged to pay in imports and exports. In addition to these taxes, Import Value Added Tax, Import Special Consumption Tax and TRT Band, which is not a special consumption tax, are also within the scope of taxes that are / may be subject to repayment and cancellation application.

Repayment and Cancellation Procedure

The applications for repayment and cancellation, which were previously required by the Ministry to be submitted in writing to the relevant administration in person with the annex-78 application form, have been opened to electronic application only with the introduced regulations. In addition to filling out the application form, the procedure for the repayment and cancellation procedure is regulated in Articles 502 and following articles of the Customs Regulation. For the taxpayers who will make an application, it is important to regularly follow the Customs Law, Customs Regulation and electronic application system in terms of the application period, the examination of the application and the result of the application.

Repayment and cancellation applications are subject to certain periods of limitation, as in all administrative appeals. However, within the scope of the repayment and cancellation application; the duration of each tax debt is regulated separately within the framework of the type of tax. If the application is not made, it will not be possible to repay the tax subject to repayment or cancellation. Exceeding the right to apply in terms of time is regulated in Articles 211, 213 and 214 of the Customs Law as an exception. The exempted articles deal with force majeure and unexpected situations related to why the application cannot be made. In order to benefit from these exemptions, taxpayers must prove the force majeure or unexpected circumstances to the customs administration.

Review of the Application

In the case of an application for repayment or cancellation, the customs administration must conduct a comprehensive and qualified investigation. It will be sufficient to investigate all applications for repayment or cancellation made within the time limit, and in this case, the administrative process will proceed as a whole for both the administration and the applicant.

It would be a procedural error for the administration to issue different decisions on an application regardless of its legal basis. In the event that taxpayers make separate applications for the same tax debt for different legal reasons, a single decision should be issued. It is possible that a new case law may emerge, the law may change in a way to affect the old one in a favorable way, and these may not have been foreseen, evaluated or asserted by the administration in more than one application for repayment or cancellation of the same tax debt.

Partial or full rejection of the application made by the relevant customs administration will not prevent a new decision on the same subject during the application period. If there is a court decision on the subject, the Customs Administration will not be able to make a new decision and will have to implement the court decision. It should be taken into consideration that although no relevant conditions change during the application process, the fact that taxpayers make more than one application will be perceived as an abuse of right due to excessive stationery and unnecessary occupation of the administration, which may lead to a decision against the applicants in the application.

If the result of the application, which must be notified in writing by the relevant administration, is unfavorable to the applicant, the remedy of appeal under Article 6, Paragraph 3 of the Customs Law is open, subject to the condition that the appeal must be justified.

Since the decision against the applicant as a result of the examination of the application by the relevant customs administration was made within the scope of the Customs Law, administrative appeal procedures must be exhausted in order to apply for judicial remedy.

How to Apply?

With the new regulation, the repayment or cancellation can now only be done electronically. In the electronic booklet prepared by the Ministry to explain the new system to citizens, it is stated as follows: “The Repayment or Cancellation Request Management System is a system that allows the electronic submission of the “Repayment or Cancellation Application Form” and the documents that must be submitted in accordance with Article 502 of the Customs Regulation within the scope of the repayment and cancellation applications to be made in accordance with the provisions of Articles 211 to 214 of the Turkish Customs Law No. 4458, which must be submitted in accordance with Article 502 of the Customs Regulation and which are included in Annex 78 of the said Regulation. 01.04. 2020 dated 01.04. 2020 and published in the Resmi Gazete (Official Gazette or newspaper of Turkish Republic) dated 31086 numbered 30th article of the Regulation on the Amendment of the Customs Regulation published in the Official Gazette dated 01.04. 2020 and numbered 31086, the Repayment or Cancellation Application Form and the documents attached to the Form must be submitted electronically to the relevant Customs Directorate by following the steps specified below.”, “…The application is accessed from the eTransactions section on the web page of our Ministry with the BILGE System user code and password.”

CONCLUSION

Repayment and cancellation are an administrative remedy that serves to resolve disputes at the administrative stage within the framework of customs duties and fines. The evaluation of the application process based on the value added tax, TRT Bandrol fee and anti-dumping tax levied on imports, which are stated to be within the scope of repayment and cancellation, is made according to the characteristics of each economic obligation taken during imports.

THE PROCESS OF OBJECTION TO CUSTOMS DUTIES UNDER ARTICLE 242 OF THE TURKISH CUSTOMS LAW

13 March 2023

FBK&PARTNERS

THE PROCESS OF OBJECTION TO CUSTOMS DUTIES UNDER ARTICLE 242 OF THE TURKISH CUSTOMS LAW

Article 242 of the Customs Code regulates complaints and executive decisions related to customs and fines. The administrative appeal regulated under the Customs Law is a mandatory administrative remedy. When the provision of Article 242 and its secondary legislation are analyzed, it is understood that this practice is contrary to the basic principles of administrative law and fundamental rights and freedoms. This is because this remedy directly affects the taxpayer’s right of access to the jurisdiction. In addition, the taxpayer’s property rights can indirectly affects by the interests for late payment that may arise due to the prolongation of the administrative and legal process.

INTRODUCTION

Article 242 of the Turkish Customs Law regulates the appeal procedure for customs duties and fines. This regulation is considered as an administrative appeal that must be exhausted before the lawsuit. Therefore, the administrative objection process that stipulated in the Turkish Customs Law has affected the right to file a lawsuit of related persons. This is because failure to file the objection properly also prevents the filing of a lawsuit. For this reason, it is important to clearly state the duration and procedure of the administrative objection regulated by law.

LEGAL SCOPE OF ADMINISTRATIVE OBJECTION

The administrative objection procedure is regulated under Article 242 of the Turkish Customs Law. In the former regulation of the article, we see that a two-stage approach was used for correction and objection. However, since the practice did not yield the expected results, the aforementioned provision was amended, and the correction request practice was abandoned. According to Article 242, “Within 15 days from the notification, the debtors may appeal against the customs duties, fines and administrative decisions under a petition addressed to a superior authority or to the same authority if such a superior authority does not exist. Article 242/4 of the Turkish Customs Law stipulates that if the objection is rejected, the objection may be appealed to administrative jurisdiction. Although the provision in question is regulated as “may appeal”, the “Danistay” (the highest supervisory authority in the administrative judiciary) has established ruling cases that administrative appeal procedures must be exhausted before applying to the judiciary. According to this provision, taxpayers may file an administrative appeal against tax and penalty decisions. The fifteen-day period mentioned in the provision is legally guaranteed for the reconciliation request.

Pursuant to Article 242/2 of the Turkish Customs Law, an answer to the objection must be given within 30 days following the filing of the administrative objection. If the administration does not respond within 30 days, it is accepted that the application is tacitly rejected, and the judicial remedy is opened. However, Article 586 of the Customs Regulation; “The objections shall be notified to the relevant person by making a decision within thirty days by examining the declaration and all other documents subject to the dispute and the sample to be taken from the goods, the goods themselves in cases where it is not possible to take a sample or other documents that will give an idea without seeing the goods such as photographs, catalogs, prospectuses, or if necessary, by taking the opinion of the relevant customs administration. In cases where a decision cannot be taken within thirty days, the second paragraph of Article 6 of the Law shall apply.” In paragraph 2 of Article 6 of the Turkish Customs Law; “The request for a decision must be made in writing. Customs administrations take a decision within 30 days from the receipt of the application regarding the request. Decisions made are notified to the applicant in writing. However, that 30-day period may be exceeded where the customs administrations are unable to comply with it. In that case, those administrations shall so inform the applicant before the expiry of the above-mentioned period, stating the grounds which justify exceeding it and indicating the further period of time which they consider necessary in order to give a ruling on the request.” In the circular issued by the General Directorate of Customs in 2014 on responding to administrative appeals, the explanations on the determination of this additional period of time cited Article 10 of the Turkish Administrative Procedure Law as the provision on which the additional period of time would be based. Within the scope of these provisions, for disputes, the obliged parties must first exhaust the administrative appeal procedures.

The administrative appeal period is 15 days, and the relevant administration must respond to the acceptance or rejection of the objection within 30 days. However, if the administration determines that the examination will exceed the 30-day period, it must notify the applicant of the additional period deemed necessary before the end of the period and with justification. On the other hand, the period specified in the Turkish Administrative Procedure Law provision should not exceed 6 months from the application. In any case, even if the additional period is used, the applicants may apply to the judicial remedy according to paragraph 2 of Article 10 of the Turkish Administrative Procedure Law due to the lack of a final result within the 30-day period. If the answer given by the administration at the end of the additional period is in favor of the applicant, the administrative judiciary should conclude the case by issuing a decision of “no decision” since the lawsuit filed will not be subject to the case.

OBLIGATION OF THE ADMINISTRATIVE REMEDY

It is important to examine the compulsory administrative appeal as it may lead to loss of rights. This is because, if the administrative appeal is made mandatory, the administrative action may be subject to litigation only if there is an objection. At the same time, exceeding the mandatory administrative objection period will lead to loss of rights in terms of both objection and judicial remedy. Although it is regulated as a right in the relevant legislation, it is seen from the regulations of the Danistay that administrative objection is considered mandatory. The regulation on administrative objection in the Turkish Customs Law is one of them. Paragraph 1 of Article 242 of the Turkish Customs Law clearly stipulates that “an objection may be filed”. Despite this provision, it is understood from the case law of the Danistay and the circulars of the Ministry of Trade that the said provision is a mandatory administrative remedy. There is no explanation as to what the legislator meant by this provision. A literal interpretation of the provision is possible, but since the wording of the provision conflicts with the practices, there will not be a definitive interpretation of the provision.

EVALUATION IN TERMS OF RIGHT TO LEGAL REMEDIES

The necessity of exhausting the mandatory administrative objection before the judicial remedy, the possibility of losing the freedom to seek rights due to the complete closure of the judicial remedy in case of missing the deadline, and the fact that it is related to the property rights of the taxpayers should be clearly understood by the by interested parties. The administrative appeal procedure regulated in the Turkish Customs Law is not regulated in a single law and its application is also shaped by the Turkish Administrative Procedure Law, the communiqués of the Turkish Ministry of Trade and the case law of the Danistay.

The fact that the administrative objection, which is accepted to be mandatory, is regulated in a complex manner in the laws, which may cause individuals to suffer loss of rights, is contrary to Article 40/2 of the Constitution. The administrative objection procedure in the Turkish Customs Law creates a temporary obstacle in terms of taxpayers’ rights in terms of the freedom to seek rights, at the stage of going to the judiciary.

The regulation under Article 242 of the Turkish Customs Law is essentially uncomplicated. However, the fact that the regulation in the Customs Regulation refers to Article 6 of the Turkish Customs Law, the additional period provision in the article is not clear, and the additional period is based on Article 10 of the Turkish Administrative Procedure Law in the circular published by the General Directorate of Customs causes the administrative objection, which is the subject of this framework, to be procedurally complicated.

CONCLUSION

According to the literal interpretation of the legislator, the administrative appeal procedure under Article 242 of the Customs Code is an optional remedy. However, there are many contradictions when it comes to the elements of the administrative appeal procedure in the Turkish Customs Code. These contradictory statements lead to blocked access to courts and loss of property rights.

FRANCHISING AND THE LEGAL NATURE OF FRANCHISE

10 March 2023

FBK&PARTNERS

FRANCHISING

- What is Franchising?

Franchising is the granting of the franchisee of a brand to independent investors, in return for a certain financial cost, by providing support for the management and execution of the business under certain conditions. Franchise literally means “concession.”

Franchising is a business model where a company (the franchisor) grants the right to use its brand, products, services, and operating system to another person or company (the franchisee) in exchange for an initial fee and ongoing royalties. The franchisee operates a business under the franchisor’s brand name and receives support and guidance from the franchisor in areas such as marketing, training, and operations.

- What are the Advantages of Franchising?

While providing advantages such as growth and increase in business volume for the franchisor, it increases profits without the need for businesses to make payments such as entrance fees. In this way, it allows them to develop and grow at a very low cost.

For the franchisee, there are many advantages such as continuous training and technology support, advertising and promotion. In addition, those who will open a private business for the first time will have the advantage that they can manage a business at a lower cost without facing a difficult and complex process.

- Legal Nature of Franchising Agreement

The franchise agreement is not regulated in the Code of Obligations. This contract, like other contracts, is subject to freedom of contract, provided that it is within the framework of the rules of law. Within the scope of this contract, both parties have mutual obligations to fulfill.

For example, while the franchisor is under the obligation to make the business and marketing system available to the franchisee, the franchisee is under the obligation to make and support the release of goods and/or services on its own behalf and account, the obligation to use the intellectual and industrial elements in the production, business and marketing system and to contribute to the continuation of their legal and actual existence, and especially to inform the franchisor of any infringement thereof, the obligation to comply with the production, business and marketing principles contained in the system and determined by the franchisor, and the obligation to pay a fee. In this case, it can be said that it is a contract that imposes obligations on both parties.

Since the obligations that are the subject of franchise agreements are not fulfilled immediately by fulfilling the obligation, but by spreading over the duration of the contract, there is a continuous debt relationship. Since there is a continuous debt relationship within the scope of the franchise agreement, the termination of the agreement will not be terminated by the fulfillment of the debt, but a fixed-term franchise agreement will be terminated automatically upon the expiration of the contract period agreed by the parties, and an indefinite-term franchise agreement will be terminated by ordinary termination notice.

To summarize briefly, franchising is currently a business model in which one company gives another person or organization the right to use its brand name, products and services in exchange for a certain fee and royalties. The franchisee benefits from the existing company’s brand recognition, business model and support from the franchisor, while the franchisor grows its business through the franchisee’s efforts

Franchising can be a great opportunity for entrepreneurs looking to start a business, but it is important to conduct thorough research and understand the terms and obligations of the franchise agreement before signing the franchise agreement.

SETTING UP A LIMITED CONSTRUCTION COMPANY IN ENGLAND

9 March 2023

FBK&PARTNERS

SETTING UP A LIMITED CONSTRUCTION COMPANY IN ENGLAND

What is Limited Company?

A limited company is an organisation that is referred to by law as a ‘legal entity/person’. This means that the company has its own identity, is entirely separate from its owner and does business under its own name. If the business makes money, it must pay tax, and if the business loses money, it can build up debt – just like a real person.

Here is a 10 step guide to walk you through the setup process:

CHOOSE YOUR COMPANY NAME: When registering as a limited company, there are restrictions on the types of names that can be used as company names.

The company name cannot be the same as another registered company’s name. If your name is too similar to another company’s name, you may have to change it if a complaint is made against you. Choosing a name that is already taken is not worth it as it could confuse your customers and affect your business. The company name should not be offensive, must not contain ‘sensitive’ words or expressions, and should not suggest a connection with government or local authorities, unless permission is granted to do so.

APPOINT DIRECTORS AND SHAREHOLDERS: A limited company must have at least one director who is legally responsible of running the company as well as ensuring that the company accounts and reports are properly prepared and up to date. Directors must be 16 years of age or older. Previously disqualified directors cannot assume the role of director in a newly established company. While directors don’t have to live in the UK, the company must have a registered office address at the UK. All directors’ names and addresses are publicly available online in Companies House. If you’re setting up a private limited company, you don’t need a company secretary, although, some companies use them to take on some of the director’s responsibilities.

The company secretary can be a director but cannot be:

The company’s auditor
An ‘undischarged bankrupt’ – unless they have permission from the court.

SHAREHOLDERS AND ISSUING SHARES: A company limited by shares must have at least one shareholder, who can be a director. If you’re the only shareholder, you’ll own 100% of the company shares. There’s is no upper limit for the number of shareholders. The price of an individual share can be of any value. If the company needs to shut down, shareholders will need to pay for their shares in full. You can set a low share value (for example, £1) to limit the shareholders’ liability. You can include any other shareholder in the company, as long as the total amount of shares are divided proportionately to the capital. Selling a share to another person can be beneficial in the event of equal votes. This way, another person can be the tie-breaker and make a decision.

When you register a company, you need to provide a statement of capital that sets forth the information about the shares.

This should include:

The number and the type of shares the company has and their total value – known as the company’s ‘share capital.’
The names and addresses of all shareholders – known as ‘subscribers’ or ‘members.’

REGISTER WITH THE COMPANIES HOUSE: When you have made all the crucial decisions regarding your company name and the people involved (directors, shareholders etc), you need to register your company with the Companies House. To do this, you will need to go online and access the Companies House website, submit all the required information on the setup form and pay a fee of estimately £12.

Companies House will check your application to register your company and see if the name you’ve chosen is available for use. They will also ask you to appoint a company director and a company secretary. You may also seek help from an accountant to do all this for you.

MEMORANDUM AND ARTICLES OF ASSOCIATION: When registering your company, you will also need to file a Memorandum of Association with the Companies House. This is a document that tells everyone why you’ve set up the company, and how you plan on running it. Should a tax dispute arise, this document can have significant legal importance in the courts.

If you are opting to write the document yourself, the key is to keep it simple and only state the key information needed, including:

What is your company for?
How do you intend to run it?

It is always recommended to seek to advise from your accountant before filling the memorandum.

SETTING UP A BUSINESS BANK ACCOUNT: A limited company must have its own business bank account which is used for all income and expenses related to the business. Revenues earned by the company must be paid to the company account and cannot be paid to the company under your own name.

Having a business bank account also makes things a lot easier when managing accounts and filing tax returns. Having your personal and business finances kept separately makes managing your income and expenses clearer, which can help your business to thrive. It’s also how HMRC would expect you to manage your funds should an investigation take place.

A business bank account can take anywhere between a few days to a few weeks to set up, depending on the bank. Shop around for the best bank account options so that you can take advantage of the best deals.

REGISTER FOR CORPORATION TAX: After registering your company with the Companies House, you’ll also need to register it for Corporation Tax within 3 months of starting to do business. This includes buying, selling, advertising, renting a property and employing someone. Failing to register within the 3 month period can result in a penalty fine.

To register online, you’ll need your company’s 10-digit Unique Taxpayer Reference (UTR) which will be posted to your company address HMRC a few days after the company has been incorporated.

REGISTER FOR VAT: VAT is a tax charged on most goods and services in the UK with the ‘standard’ rate currently at 20%.

If your business turnover for the previous 12 months exceeds the current VAT threshold level (£85,000 as of April 1^st, 2017), then your company must register for VAT.

If you expect your turnover to exceed the threshold within the next 30 days alone, you should also register for VAT. You may also decide to register for VAT even if you don’t expect to reach the threshold.

Most contractors who run limited companies are registered for VAT. Not only does it give a professional impression to be VAT registered, but it will also enable you to reclaim any VAT you incur.

You can register for VAT online at: https://www.gov.uk/register-for-vat

THE CIS (CONSTRUCTION INDUSTRY SCHEME): The Construction Industry Scheme (CIS) is a tax deduction scheme which involves tax being deducted from payments related to certain types of construction work. The CIS covers most construction work to permanent or temporary buildings as well as civil engineering work like roads and bridges.

If you’re working in the construction industry as a subcontractor or contractor, you need to register with HMRC for the Construction Industry SCHEME (CIS).

The scheme works by contractors deducting money from subcontractor’s pay and passing it onto HMRC. The deductions are counted as advance payments towards the subcontractor’s tax and national insurance.

You can apply for gross payment status when you register for CIS if you do not want to pay advance payments.

It is compulsory for contractors to register, but not for subcontractors. However, subcontractors will have to pay a higher rate of national insurance.

How to Register for the CIS: To register for the Construction Industry Scheme (CIS) you will need:

Your legal business name – you can also give a trading name if it’s different to your business name
Your National Insurance Number
The unique taxpayer reference number (UTR) for your business
Your VAT registration number (if you’re VAT registered)

If you’re a subcontractor and a CIS Contractor (you pay subcontractors to do construction work), you’ll need to register for the CIS as both.

You can find online registration forms and procedure at: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register

HOME RENOVATING: DO I NEED PLANNING PERMISSION?

à You can perform certain types of work without needing to apply for planning permission. These are called “permitted development rights”.

They derive from a general planning permission granted not by the local authority but by the Government. Bear in mind that the permitted development rights which apply to many common projects for houses do not apply to flats, maisonettes or other buildings. Similarly, commercial properties have different permitted development rights to dwellings.

In some areas of the country, known generally as ‘designated areas’, permitted development rights are more restricted. For example, if you live in:

A Conservation Area
A National Park
An Area of Outstanding Natural Beauty
A World Heritage Site or
The Norfolk or Suffolk Broads.

You will need to apply for planning permission for certain types of work which do not require an application in other areas. There are also different requirements if the property is a listed building. It is generally advised that you should contact your LOCAL PLANNING AUTHORITY and discuss your proposal before any work begins. They will be able to inform you of any reason why the development may not be permitted and if you need to apply for planning permission for all or part of the work.

à Permitted development rights are a type of general planning permission granted by the Parliament. If your plans fall within certain restrictions, this allows you to bypass submitting a planning application. Permitted development only applies to houses and outhouses (never flats or maisonettes), and there may be exceptions if you live in a listed building or in a conservation area (‘Article 4’ direction). If you have had construction work done in the past, you may have used up some or all of your permitted development rights already. Like planning permission, permitted development is regulated through your local planning authority.

You’re usually within permitted development rights if your single storey extension or conservatory:

Sits to the side (as long as it does not face a highway) or the rear of the house (not the front)
Must not extend beyond the rear wall of the existing house by 3 meters of an attached house or 4 meters if detached
Uses similar building materials to the existing structure
Takes up less than 50% of the size of the land around the original house (‘original’ refers to the time when the property was built or if it was built before 1948, then as it stood on July 1^st, 1948)
If a side extension is less than 50% of the width of the original house
Is less than 4 meters in height (or less than 3 meters if its within 2 meters of a property boundary)
Has eaves and a ridge that are no taller than the existing structure

You’re usually within permitted development rights if your loft conversion:

Adds less than 40 cubic meters to a terraced house, or 50 cubic meters to a detached or semi-detached house
Uses similar building materials to the existing structure
Sits lower or equal to the highest part of the existing roof
A dormer wall that is set back at least 20 centimeters from the existing wall face
Has windows that are non-opening if less than 1.7 meters from the floor level
Has side windows that are obscured/frosted

You’re usually within permitted development rights if your porch:

Takes up a total ground area less than 3 square meters
Has the highest point lower than 3 meters
Does not sit within 2 meters of a property boundary that leads to a road

What building work does not fall under permitted development?

Balconies
Verandas
Raised platforms
Two storey side extensions within 7 meters of a rear boundary
Extensions with eaves higher than 3 meters (within 2 meters of a boundary)
Extensions exceeding 50% of the original land around the original house
Eaves and a ridge of a loft higher than the height of the original house
Extensions over 4 meters tall or exceeding 50% of the width of the original house
Extensions at the front of the house
Side extensions on designated land
Unobscured side windows above ground floor
Loft windows that can open when positioned less than 1.7 meters from the floor

WHAT IS A LAWFUL DEVELOPMENT CERTIFICATE? If the legislation for permitted development on your project are not clear cut, or it has been conditionally withdrawn in your area, you should apply for a lawful development certificate or may even need to submit a planning application. However, we recommend everyone to use their permitted development rights. This process ensures that your building work (past, present or future) is compliant, and will protect you if you wish to sell your property. The application process is similar to a planning application. You’ll need to provide:

An application form
Evidence verifying the information within the application.
This would include architectural plans and elevations
A site location plan
A fee

ARBITRATION AS AN ALTERNATIVE DISPUTE RESOLUTION METHOD

9 March 2023

FBK&PARTNERS

ARBITRATION

Arbitration is a dispute resolution method in which disputes between the parties are resolved by arbitrators appointed by the parties themselves, rather than by the official judicial bodies of the state, provided that they are within the scope of the matters permitted by law to be resolved by arbitration.

Arbitration is especially used to resolve commercial and investment disputes. Arbitration requires at least two parties and an arbitration agreement. These parties may be real person or legal entity.

What are the Conditions for the Validity of the Arbitration Agreement?

The primary condition is that the parties should have a common will to arbitrate. Their willingness to arbitrate must be clearly and unequivocally expressed, otherwise arbitration agreements will not be valid.

The dispute that is the subject of the arbitration agreement must be a specific or determinable dispute. The subject of the dispute must be arbitrable. For example, article 408 of the CCP (Code of Civil Procedure) explicitly stipulates that disputes arising from real rights over immovable property or from transactions that are not subject to the will of both parties are not arbitrable.

The process of arbitration typically begins when one of the parties files a request for arbitration. The other party is then notified and given the certain time to respond. If the parties agree to arbitration, they shall select an arbitrator or arbitral tribunal to hear their dispute. The arbitrator will then hold a hearing at which evidence is presented and the disputes of the two parties are discussed and the dispute is decided in a decision that will be binding on the parties.

For some disputes, arbitration is a condition, whereas for some disputes, the parties have the right to choose whether to submit to arbitration.

Arbitration is divided into two categories as mandatory and voluntary, depending on whether it is obligatory for the parties to resort to arbitration.

In mandatory arbitration, the will of the parties is not taken into account. In mandatory arbitration, arbitration was stipulated as a condition for the resolution of the dispute. If it is depends on the will of the parties to resort to arbitration there is voluntary arbitration here.

In mandatory arbitration, the dispute will be resolved by an arbitrator or arbitral tribunal which is prescribed by law. In voluntary arbitration, the parties are free to choose the arbitrator or arbitrators as well as to apply for arbitration. However, they are bound by the arbitrator’s decision.

Arbitration is also divided into domestic arbitration and international arbitration. If there is no “foreign element” in the relationship between the parties, domestic arbitration is resorted to. A legal act, deed or transaction is considered to have an element of foreignness if it is related to more than one legal system. For example, if the parties agree on a place outside of Turkey as the seat of arbitration, even if both parties are Turkish, there will be an element of foreignness and this will be sufficient for the arbitration to be international.

In the event that the parties have not agreed on the rules of procedural law to be applied in the arbitration agreement, either the provisions of the Code of Civil Procedure regarding arbitration or the provisions of the International Arbitration Law shall apply, depending on the nature of the dispute. Matters relating to arbitration are regulated under Articles 407-444 of the Code of Civil Procedure No. 6100. The provisions of the Code of Civil Procedure No. 6100 on arbitration shall apply to disputes that do not involve a foreign element and where the place of arbitration is determined as Turkey.

One type of international arbitration is investment arbitration. Investment arbitration is a dispute resolution mechanism used in international law to resolve disputes between foreign investors and the host state in which they have invested. The most important international resource in terms of investment arbitration is the ISCID Convention.

Investment arbitration typically arises when a foreign investor has invested in a host state, and the host state takes actions that the investor believes violate their rights under a bilateral or multilateral investment treaty or a contract between the investor and the state. These actions may include expropriation of the investor’s property, breaches of contract, discriminatory treatment, or failure to provide adequate protection and security.

The claim is typically heard by an arbitral tribunal, which is a panel of one or more arbitrators who are selected by the parties or appointed by an institution such as the International Centre for Settlement of Investment Disputes (ICSID) or the Permanent Court of Arbitration (PCA).

Arbitration has several advantages.

One of the main advantages is that arbitration can be concluded much faster than official judicial bodies of the state proceedings.

The arbitration process can usually be resolved within a few months, whereas state court cases can take years to resolve.

Arbitration is also generally less costly than formal state judicial bodies.

The cost of an arbitration hearing is generally lower than in other jurisdictions and there are fewer procedural requirements to be met.

Can Arbitral Awards be Appealed?

Arbitral awards are not subject to appeal in terms of content. This means that the courts cannot review whether the award is correct and proper.

Procedurally, it is possible to file a lawsuit for an annulment award in the country where the arbitration takes place.

There are prescribed conditions for an annulment action. The primary ones are that the award was rendered after the expiration of the arbitration period, the award was rendered on an issue that was not requested, and the notice for the hearing was not timely served.

As can be seen, arbitration is a dispute resolution method that has various types and has many advantages. Considering within the scope of cost, time and procedures, in case of any dispute, it may be much more efficient to resolve disputes through arbitration within the scope of issues where the law in dispute allows to resort to arbitration.