Franchising

Franchising describes a contract in which one party (the franchisor) obtains a franchising fee from another party (the franchisee). In turn, the franchisor allows and supports the franchisee with independently selling certain goods or services.

Similar to the authorized dealer, the franchisee acts in his own name and with his own money. Just like the authorized dealer, the franchisee has to sell his goods and services. But he also has to adhere to certain rules regarding the marketing of his products, thus maintaining the outer appearance of the corporate identity.

Similar to the authorized dealer contract, the franchise contract as a distribution contract isn‘t clearly defined by German law. Over time, the franchise contract has been treated as a mixed contract. This means that it consists of parts from different types of contracts, which define the service, license, rent, and sales of goods elements of said legal document.

Depending on the Franchisor-Franchisee relationship, commercial agent law might be applicable. If the rules set by the franchisor are too strict to consider the franchisee self-employed, he will be viewed as an employee.

Before you sign a franchise contract, no matter if you are a franchisee or franchisor, please inform yourself about the options at hand. Consulting a lawyer who has experience with franchises can help you avoiding pitfalls. He can provide you with the information relevant to your situation, thus helping you to make solid long-term decisions.

The contract should explicitly govern the rights and obligations for both parties. In addition to defining place of jurisdiction, applicable law and additional general clauses, it should also include  

• Territorial protection for the franchisee and a no-competition clause for the franchisor,
• Obligations of the franchisor, such as defining the rights of use, supply obligation, and to what extent it has to advise and support the franchisee,
• Obligations of the franchisee, such as paying the required fees, abiding to the rules laid down in the ‘Franchise-Handbook’, balancing, accounting and required advertising efforts,
• The term of the contract, including requirements and consequences of a termination with notice and without.

Specializing in business law, WINHELLER offers its clients sound legal advice. In regards to franchising, we can advise you equally well in matters regarding commercial law, tax law, employment law, as well as intellectual property law.

We would also like to point out that buying a franchise isn’t the only opportunity to conduct business in Germany. Some entrepreneurs may pursue other business models. Please don’t hesitate to contact us, if you’re uncertain about which model best suits your business plan.