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. The franchisee has to sell goods and services while adhering to franchise regulations regarding the marketing of the products, thus maintaining the outer appearance of the corporate identity.
There are no clear franchise laws and regulations in Germany as the franchise contract as a distribution contract is not 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 in order to define arrangements regarding
- rent, and
- sales of goods elements.
Depending on the franchise 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 signing a franchise contract, all involved parties should inform themselves about the options at hand. Consulting a franchising attorney who has experience with franchising in Germany can help you avoiding pitfalls. An attorney can provide you with the information relevant to your specific situation and help to make solid long-term decisions.
The franchise contract should explicitly govern the rights and obligations for both parties. In addition to defining the 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 he has to advise and support the franchisee,
- obligations of the franchisee, such as paying the required fees, abiding the rules laid down in the franchise handbook, balancing, accounting and required advertising efforts, and
- the terms of the contract, including requirements and consequences of a termination with and without notice.
Specializing in business law, our franchise lawyers offer sound legal advice. In addition to franchising law, we can advise you equally well in matters regarding German commercial law, tax law, employment law, and intellectual property law.
We would also like to point out that buying a franchise is not the only option to conduct business in Germany. Some entrepreneurs may pursue other business models. Please do not hesitate to contact us if you are uncertain about which model best suits your business plan.
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