Franchising 2026

INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons

unique route. One of the broadest definitions is found in France, where the Doubin Law on pre-contractual disclosure (Article L330-3 of the French Commercial Code) applies to any person who makes a trade name, trade mark or commercial sign available to another person and requires that other person to operate with an exclusive or quasi-exclusive commitment. In Indo - nesia, a franchise is defined more narrowly as a spe - cial right to use a proven, successful business system (where the system must be documented and distinct, with written standards and proven profitability for at least three consecutive years – supported by audited accounts for the past two years showing a profit – and registered intellectual property) for marketing goods and/or services, supported by an intellectual property agreement. Most definitions also include the payment of a fee and the licensing of intellectual property. The common elements of a franchise definition therefore appear to be that there is an agreement between the franchisor and franchisee, pursuant to which the fran - chisee is authorised to use the intellectual property of the franchisor and the business system of the fran - chisor in return for making a payment. It is important to pay close attention to the precise definition of franchising in the target market, to avoid creating an “accidental franchise”. Equally, it is pos - sible that a business system that is considered a fran - chise in one country may not be permitted to start franchising in another country, until it has met the prof - itability or pilot operations requirement. For example, in China the 2 + 1 rule requires that a company cannot be registered as a franchisor until they have operated two outlets for at least one year. One note of caution for companies that refer to their contract as a “licens - ing agreement”. The name of the contract does not determine whether franchise laws apply. If the con - tract meets the criteria of the franchise law, it will need to comply with the relevant franchise regulations. Why is Franchising Regulated? There are more than 30 countries in the world with specific franchise laws. These laws seek to protect local franchisees from entering into a long-term com - mitment to invest in a franchise business without full and frank disclosure of all material facts. A success - ful franchise agreement requires long-term collabora - tion based on mutual trust. In view of the significant

investment and long-term commitment required from the franchisee, many countries in the world recognise the need to regulate the formation and content of the franchise agreement. The sale of a franchise can be compared to the sale of securities or investments, and the disclosure document can be viewed as taking the function of a mandatory prospectus. Franchise regulation takes three principal forms. • Disclosure obligation: A large number of countries impose a legal obligation on the franchisor to make full and frank disclosure of key commercial and legal information about the franchised business. • Registration: An obligation to register the franchise exists in the USA and certain Asia-Pacific (APAC) countries. Australia has recently introduced a sim - ple form. Some registration processes are complex and require translation into the local language, so franchisors need to factor the time required to sat - isfy these requests into their timetables. • Relationship laws: Legislation designed to black - list unfair terms in franchise agreements is on the increase. It is important to ensure that the franchise agreement is reviewed for compliance with these relationship laws. Franchise Disclosure Obligations The most important legal obligation of the franchisor is that of disclosure. More than 30 countries in the world have formal franchise disclosure laws. Most civil law countries recognise a general obligation of disclosure based on the principle of good faith but do not spec - ify what is to be disclosed. The franchise disclosure document typically contains two elements. Firstly, information about the business opportunity (including financial information) must be given. Secondly, disclo - sure of the franchise agreement is required, highlight - ing important obligations of the franchisee. Typical franchise disclosure items Typical franchise disclosure items include: • information about the business, including its his - tory and the franchise opportunity; • financial information about the franchisor, such as audited accounts; • details about disputes;

FRANCHISING 2026

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