Would you like to step into self-employment and set up your own franchise business in Germany? Or you have already successfully established a business concept and would like to expand it through your own franchise system?
For the franchisor, a franchise system is a good way to establish a a good opportunity for the franchisor to quickly expand a functioning and business quickly. For the franchisee, this system offers the advantage of advantage of being part of an already established business model and benefiting from the franchisor’s experience and brand awareness. brand awareness. However, since franchise law in Germany has not been codified to this day and is mainly based on the application and further development of the law by the courts, it is often difficult for laymen to difficult to grasp for legal laypersons.
The lawyers of Schlun & Elseven Rechtsanwälte offer company founders equally professional and committed legal assistance so that nothing stands in the way of the successful establishment of their franchise business or the development of a franchise system. offers . Our lawyers for corporate law have excellent expertise, extensive experience and reliable industry-specific know-how. In this way, we want to ensure that your franchise is equipped with the best possible legal framework to gain a foothold in the market successfully. Please do not hesitate to contact us directly for specialised legal advice.
What does Franchising Mean?
Franchising is a cooperative distribution system for goods, services and technologies between legally independent companies – the franchisor on the one hand and one or more franchisees on the other. The basis for this is a continuing contractual obligation. A distinction is made between goods, service and production franchising, although mixed forms are not excluded.
Through the franchise agreement, the franchisor grants the franchisee the right to use its business concept to distribute goods, services and/or technologies. The franchisee thus uses the franchisor’s name or brand, know-how and marketing concept. Although the franchisee is an independent entrepreneur, the franchise agreement determines their creative possibilities and are accordingly limited.
The franchisor’s services can vary greatly depending on the franchise system. They range from supporting the franchisee in the preparation of the business plan and the financing plan to assistance in location choice and the provision of training and courses. In the franchise manual, the franchisee is regularly given detailed specifications for implementing the business concept.
The franchisee agrees to pay fees in return for using the business model. These are usually a one-off entry and an ongoing franchise fee, usually based on the franchisee’s turnover.
What should Parties consider before Signing a Franchise Agreement?
A first step to starting a franchise company is the search for a suitable franchise system. At best, the offers of different franchisors are checked and compared with each other. Of course, it is essential to inform yourself comprehensively about the business concept and the franchise system in advance and obtain all the necessary information from the franchisor.
It should be noted that the franchisor is already subject to specific pre-contractual duties of disclosure during the initiation of the contract and the start of contract negotiations based on the principle of good faith. The franchisor must not make false claims and must inform the franchisee about those circumstances that may be essential for the franchisee’s decision to conclude the contract. In particular, a correct and complete explanation of the profitability of the franchise system must be given. If the franchisor violates their duty of disclosure, they may have to pay damages.
Once the right franchise system has been found, and the financing of the establishment of the franchise company has been clarified, the franchise contract is concluded.
Careful Legal Examination of the Franchise Contract
The franchise contract forms the legal basis of the franchise system and defines the franchisor and franchisee’s rights and obligations. The contract is a continuing obligation (§ 314 BGB), which does not only aim at a one-time exchange of services. Instead, a permanent contractual relationship with ongoing obligations arises between the parties.
A franchise contract is a mixed contract. It regularly consists of elements of the purchase, rental and lease contracts and the service and agency contracts. Also, various areas of law such as cartel law, competition law, copyright law and trademark law are often touched upon in the agreement. Depending on the industry and the type of franchise system, the form of the contract can vary greatly.
Not least because of the lack of specific franchise law, franchise agreements often become very extensive. In practice, the franchise contract is regularly drawn up unilaterally by the franchisor. To not overlook any problem points and get a good overview, the agreement should, therefore, be reviewed by an experienced lawyer before it is concluded. At Schlun & Elseven Rechtsanwälte, you will receive a careful legal review of your franchise agreement as well as tailor-made advice. As a full-service law firm, we combine experience and expertise in many areas of law under one roof.
Choice of Legal Form by the Franchisee
Once the franchise agreement has been concluded, it is time to set up your own company. The decision on the legal form of the future franchise business in Germany is basically up to the franchisee as a legally independent entrepreneur. Whether the business should be set up as a sole proprietorship, partnership or corporation thus depends primarily on the content of your business and issues such as capital requirements and liability and tax aspects.
Indeed, the legal form of the franchisee is basically independent of the legal structure of the franchisor. However, within the framework of the franchise system, specifications can be made regarding the company’s legal form, which then needs to be considered when setting up the business.
Our corporate lawyers know the advantages and disadvantages of the various company forms in detail. They will be happy to help you determine the appropriate legal structure for your franchise company.
Becoming a Franchisor – Developing your own Franchise System
If you are already an entrepreneur and would like to expand your business concept, it may be a good idea to develop your own franchise system. One of the basic requirements for this is the success of one or more so-called pilot businesses. In addition, the business model must be suitable for duplication in the first place. Essentially, the business model should be as easy as possible to standardise. The first step is to develop a strategy for the future franchise system.
The basis of a franchise system is the franchise contract. This franchise contract defines the mutual rights and obligations of the franchisor and franchisee. Especially against the background of the lack of specific legal regulations, the franchise agreement should be drafted carefully and as detailed as possible. It is advisable to consult a lawyer to ensure that all necessary regulations are included. In addition to the primary performance obligations, the contract duration, regulations on the termination of the franchise partnership, and regulations for the case of disputes should be particularly specified.
A franchisor should also attach importance to the preparation of a franchise manual. This manual describes the business concept to the franchisee in as much detail as possible. It should provide the know-how necessary for running the business, contain all other essential information, such as a description of the marketing concept, and thus ensure that the franchisee can implement the business model in the best possible way.
We will be happy to help you with the necessary legal preparations and, particularly, drafting the franchise agreement to facilitate starting your own franchise system.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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