Definitive global law guides offering comparative analysis from top-ranked lawyers
Franchising 2026
Definitive global law guides offering comparative analysis from top-ranked lawyers
Contributing Editor Babette Märzheuser-Wood Dentons
Practice Guides
Franchising Contributing Editor Babette Märzheuser-Wood Dentons
2026
Chambers Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair, Stephen Dinkeldein, Vivienne Button and Sean Marshall Content Reviewers Lawrence Garrett, Marianne Page, Heather Palomino, Alison Moore, Adrian Ciechacki and Michael Irvine Content Coordination Manager Nancy Tsang Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Joanna Chivers Head of Production Jasper John Production Coordinator Genevieve Sibayan
Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com
Copyright © 2026 Chambers and Partners
Contents
INTRODUCTION Contributed by Babette Märzheuser-Wood, Dentons p.4
USA Law and Practice p.74 Contributed by Kaufmann Gildin & Robbins LLP Trends and Developments p.93 Contributed by Carmen D. Caruso Law Firm
FRANCE Law and Practice p.10
Contributed by Osborne Clarke Trends and Developments p.24 Contributed by Osborne Clarke MEXICO Law and Practice p.28 Contributed by OLIVARES Trends and Developments p.41 Contributed by OLIVARES
USA – CALIFORNIA Law and Practice p.100
Contributed by Donahue Fitzgerald Trends and Developments p.112 Contributed by Donahue Fitzgerald
USA – ILLINOIS Law and Practice p.117 Contributed by Carmen D. Caruso Law Firm
NEW ZEALAND Law and Practice p.48 Contributed by MinterEllisonRuddWatts PERU Law and Practice p.61 Contributed by Aguirre Abogados & Asesores Trends and Developments p.69 Contributed by Aguirre Abogados & Asesores
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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons Dentons is a multinational law firm operating in more than 80 countries with more than 160 offices world - wide. The firm provides a wide range of legal services. Its franchise group, founded by Babette Märzheuser- Wood, has extensive experience in all aspects of franchising and related distribution models across industry sectors including restaurant, fitness, retail,
services, hospitality, entertainment, healthcare, edu - cation and automotive. Dentons provides high-level strategic advice to both new franchisors and existing franchise clients, drawing on its experience of work - ing with more than 100 different franchise systems in over 50 countries and its extensive international net - work of franchising experts worldwide.
Contributing Editor
Babette Märzheuser-Wood is the founding partner of the Dentons global franchise group. Ranked in Band 1 for Franchising by Chambers Global and Chambers UK, she has 30 years of franchise industry experi -
ence, helping clients expand their franchise busi - nesses in Europe and around the world. Multilingual and qualified in Germany and England, she has transactional experience in over 100 countries. She lectures regularly on franchise law and advised the Russian government on using franchising to kick- start small businesses. Babette advises on master franchise and area development, franchise agree - ments, unit franchising, franchise disclosure and registration, franchise disputes, taxes, dispute resolution, customer data management and loyalty schemes, anti-trust and competition, law compli - ance, regulatory compliance and litigation.
Dentons One Fleet Place London EC4M 7RA United Kingdom
Tel: +44 778 099 0750 Fax: +44 207 246 7777 Email: Babette.mwood@dentons.com Web: www.dentons.com
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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons
It is the author’s great pleasure to introduce the 2026 edition of the Chambers Franchising Practice Guide. In this guide, the aim is to provide clear and practical guidance on the most important international fran - chise laws that will impact the international expansion of a company using the franchise business model. In this introduction, an overview of key aspects of inter - national franchising is provided. Because franchising is first and foremost a business system, legal regulation varies greatly by jurisdic - tion. It should not be assumed that a legal structure or solution that has worked in one country can be translated without modification to another jurisdiction. For example, franchise disclosure documents in the United States of America are extremely detailed, run - ning to many hundreds of pages, whereas in Europe the expectation is that a summary is given. In some countries, franchise registration can be a formality whilst in others the authorities examine the documen - tation and raise queries. Withholding taxes continue to impact financial models, and new franchise laws are being enacted by more and more countries – most recently, the Kingdom of Saudi Arabia and the Neth - erlands. Other countries continue to update their fran - chise laws, typically making them more onerous. Most recently Mexico added a significant number of new disclosure items. After 30 years of working in interna - tional franchising, the author still comes across new aspects every year. Why Franchise? Franchising offers businesses a sophisticated busi - ness tool for international expansion. The estimated turnover of franchise companies in the United States now exceeds USD930 billion. As globalisation contin - ues at an unprecedented pace, more companies are looking to expand into the lucrative Middle Eastern, African, Asian and Latin American markets. The costs and risks associated with expansion into new markets can be prohibitive for small and medium-sized com - panies. Barriers to market entry for foreign investors can be considerable. Franchising in its different forms offers companies a unique opportunity for profitable international growth at a modest cost. John Y Brown Jr grew KFC from 600 stores to 3,500 stores through franchising by accessing the capital of third parties to drive fast growth. Companies do not need signifi -
cant capital or a large head count to expand globally through franchising. According to a survey of mem - bers of the International Franchise Association, 52% of US-based franchise firms had units outside the United States in 2006, rising to 68.74% in 2024. It has been suggested that franchising creates enterprise value faster than traditional business growth. Because internationalisation is inherently risky, firms favour low-resource-commitment modes of entry into foreign markets, such as distribution and franchising. As a result, franchising continues to be a popular alterna - tive to equity-funded expansion. The franchisee gains access to a tried and tested business model, backed by a strong global brand. The franchisor relies on the local market knowledge, infrastructure and capital of the franchisee, thereby reducing the foreign market risk. A well-run franchise system creates a win-win partnership. Definition of Franchising There is no uniform definition of franchising. Each jurisdiction has a different approach. However, a uni - form characteristic of franchising appears to be the existence of a “system”. This typically takes the form of an operations and marketing plan controlled by the franchisor. This principle originates in the United States of America. At the federal level, the Federal Trade Commission (FTC) Franchise Rule uses the concept of “control”, where “…the franchisor has the right to exert a significant degree of control over the franchisee’s method of operation”. Various US states follow the FTC Franchise Rule’s definition but add the concept of a marketing plan for further clarification, referring to a “marketing plan or system prescribed or suggested in substantial part by a franchisor”. The US definition has influenced the approach to defining franchising in a number of international juris - dictions, such as Australia (where the Trade Practices (Industry Code – Franchising) Regulation states that “the right to carry on the business of offering, supply - ing or distributing goods or services in Australia under a system or a marketing plan substantially deter - mined, controlled or suggested by the franchisor or an associate of the franchisor”) and Canada (Alberta uses the concepts of “a marketing or business plan pre - scribed by the franchisor” and “significant operational control”), but other countries have taken their own
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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;
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• information about the fees and other charges pay - able by the franchisee; • details of intellectual property licensed; and • an overview of important contractual obligations such as restrictions on competition, renewal and termination provisions, and buyout options. Some countries require a market study – for example, France and Belgium. This can be time-consuming to prepare if the business has never traded in the terri - tory. It is important to carefully check the full list of required disclosure items applicable to the target country. It is not recommended to provide a franchisee in one country with financial data based on experience gained in another country. Timing of franchise disclosure Franchise disclosure must generally be made a cer - tain number of days before entering into the franchise agreement or paying money – typically between 10 and 30 days. Some countries allow a deposit to be paid – for example, Canada (Ontario; CAD50,000). Most countries do not permit the making of any pay - ment. Spain even prohibits the entry into a pre-con - tract. Remedies available to the franchisee if no disclosure has been made It is important to understand the rights and remedies available to the franchisee if there has been a failure to make the required disclosure. Typically, failure to disclose gives the franchisee the right to rescind the agreement and ask for both a refund of payments and damages. Some countries specify a time period for the exercise of these rights. For example, in Canada the period is two years. In other jurisdictions, such as France, it can be a defence that the franchisee was an experienced operator and did not rely on the disclo - sure information. In addition, countries such as China and Korea impose administrative fines. Franchise Registration Outside the USA, the registration of a franchise agree - ment is less common. Franchise registration should not be confused with the obligation to register the trade mark licence or the requirement to own a reg - istered trade mark. Some jurisdictions have followed the example of the USA and require the franchise
agreement to be registered with a government body before franchises can be offered for sale. Occasion - ally, registration is made after the franchise agreement has been concluded – for example, in Russia and Chi - na. In Indonesia, it is the obligation of the franchisee to register. It is generally in the best interest of both parties to comply with franchise registration obliga - tions to ensure that the franchise agreement cannot be invalidated. Without a registered franchise, some government bodies can take the view that foreign exchange payments cannot be processed. Relationship Laws An increasing number of countries require a franchise agreement to have a certain minimum amount of con - tent. Typically, these are commonsense requirements, obligating the parties to clearly document the most important rights and obligations that arise between them – such as, for example, the territory of opera - tion, the duration of the agreement and the dispute resolution mechanism. Some countries will reject the registration if these terms are not present. Blacklisting unfair terms in franchise agreements is a relatively new trend. Countries such as France, Ger - many and Italy use fair trading laws to ensure that the franchise agreement is fair and balanced. In Germany, any provision in a franchise agreement that deviates from the German Civil Code can be challenged and requires justification. In France and Italy, the competi - tion authorities have the power to investigate whether the franchise agreement is fair and balanced. Fran - chisees can raise a complaint and require unfair provi - sions to be struck out. The leading case in France is that of Subway, where the French competition authori - ties struck out an arbitration clause that would have required the franchisee to arbitrate in New York. In Italy, a group of franchisees filed a complaint against McDonald’s for unfair practices. McDonald’s gave undertakings to the authorities to discontinue certain practices. Other countries, such as Saudi Arabia, the Nether - lands and Malaysia, require specific rights and obli - gations to be included in the franchise agreement, such as approval rights for the franchisee, protection against termination for minor breaches and protec - tion against non-renewal without good cause. In the
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Duration, Minimum Term and Renewal Franchise agreements are typically long-term con - tracts. They often have a duration of between 10 and 20 years. Termination rights are therefore important from the point of view of both parties. Many fran - chisors reserve to themselves extensive rights of ter - mination for breach by the franchisee, but will deny to the franchisee the right of early termination. A number of countries, such as Germany, impose a statutory requirement that both parties must be permitted to terminate the franchise agreement for material breach. Some jurisdictions require a minimum or maximum term for a franchise agreement – for example, France (ten years maximum) and Korea (ten years minimum). Other jurisdictions, such as Saudi Arabia, prohibit termination of the franchise agreement without good cause. This follows the tradition of the commercial agency laws, protecting local companies from termi - nation without compensation. Getting Paid It is important to verify whether the target territory has foreign exchange regulations that may prevent the franchisee from paying franchise fees in a foreign currency. Countries such as South Africa and Azer - baijan continue to regulate currency outflows, and permits may be required to pay franchise fees. Some countries impose a maximum permitted amount that can be paid by way of royalties to foreign licensors – for example, Nigeria and Pakistan. Withholding Taxes Withholding taxes can significantly impact payment flows. Most countries impose a withholding tax on royalty and technical service fee payments to foreign recipients. The tax amount can range from 5% to 25%. Franchisors will typically seek to impose on the franchisee an obligation to gross up payments, there - by increasing the amounts payable by the amount of the tax. Where withholding taxes are high, this can be onerous on the franchisee. Arguably, the franchisee should not pay a tax that is intended to be paid by the franchisor. The franchisee may not be able to receive a tax credit for this payment, and it may not be able to deduct it as an expense. The franchisor should typi - cally be able to receive a tax credit if it is a profitable business.
Netherlands, significant system changes are subject to consent requirements if the costs exceed an agreed threshold. Franchising and Competition Laws Franchise agreements invariably include restrictions on competition. In a typical international franchise relationship, the franchisor would grant an exclusive territory, and the franchisee would undertake not to operate a competing business. In addition, most fran - chisors impose nominated suppliers for critical goods and services, or nominate an affiliate as the sole sup - plier for certain contract goods and services. In the United States of America, the authorities apply the “rule of reason”, whereby the practical impact of the restrictions on competition contained in the fran - chise agreement determines if the restrictions are per - mitted or not. In the European Union, restrictions on competition contained in vertical agreements, such as franchise agreements, are prohibited and require an exemption to subsist. Most franchise systems fall below the market size threshold of 15% where the authorities intervene. Even large franchisors, such as Burger King and Subway, have not reached that market share. This protection does not apply to so- called hardcore restrictions. Those are restrictions on competition, such as price fixing, that are deemed inherently detrimental to consumers and are therefore prohibited regardless of market share. The EU vertical restraints block exemption (VBER) sets out in detail permitted and prohibited restrictions. A common question concerns the maximum permit - ted duration of purchase ties and other exclusivity obligations in franchise agreements. Under the VBER, these are permitted for five years. However, pursuant to the case law of the European Court of Justice in its landmark decision in Pronuptia of Paris, it has been clarified that longer restrictions are permitted to the extent that they are necessary to safeguard the uni - form quality standards and appearance of those oper - ating in a franchise system. Therefore, the requirement that franchisees purchase certain distinctive goods only from approved sources can often be justified for more than five years.
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Conclusion No guidebook can replace due diligence and advice from specialist local counsel with experience in fran - chising.
Some countries have an excellent network of double tax treaties enabling franchisors to reduce the amount of withholding taxes that they have to pay. For compa - nies that franchise internationally on a broad basis, it is therefore important to consider where the franchisor entity should be based.
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FRANCE
Belgium
Germany
Paris
France
Switzerland
Law and Practice Contributed by: François-Xavier Awatar and Lina Lahlou Osborne Clarke
Italy
Spain
Contents 1. An Introduction to Franchising P.12 1.1 Franchise Market Overview p.12 1.2 Franchise Regulation p.12 1.3 Definition of a Franchise Agreement p.13 2. Franchise Disclosure P.13 2.1 Mandatory Disclosure p.13 2.2 Consequences of a Failure to Disclose p.15 2.3 Franchise Disclosure Exemptions p.15 2.4 Franchise Disclosure Language/Translation Requirements p.15 3. Franchise Registration P.16 3.1 Mandatory Registration p.16 3.2 Franchise Registration Process p.16 3.3 Consequences of a Failure to Register p.16 4. Other Requirements P.16 4.1 Past-Profitability Requirements p.16 5. Duration, Renewal and Termination P.16 5.1 Duration of a Franchise Agreement p.16 5.2 Franchise Renewal p.16 5.3 Termination of the Franchise Agreement p.17 6. Restrictions on Competition in Franchise Agreements P.17 6.1 Treatment of Competition Restrictions in Franchise Agreements p.17 6.2 Exclusive Territories and Competing Businesses p.18 6.3 Requiring Franchisees to Purchase Specific Goods and Services p.18 6.4 Channel Reservation p.19 6.5 Vertical Agreement Block Exemptions p.19
7. Joint Employer Risk and Vicarious Liability P.19 7.1 Joint Employer Laws p.19 7.2 Vicarious Liability p.19 8. Choice of Governing Law P.19 8.1 Possibility of a Franchisor Stipulating Non-Local Law p.19 8.2 Local Law Requirements p.20 8.3 Mandatory Content p.20 8.4 Prohibited Provisions in Local Law p.20 9. Dispute Resolution P.21 9.1 Enforcement of Foreign Judgments p.21 10. Payment and Taxes P.21 10.1 Restrictions or Limits on Franchisee Fees and Royalties p.21 10.2 Withholding Tax p.22 10.3 Foreign Currency Controls p.22 11. Execution Formalities P.22 11.1 Authentication, Notarisation, Witnessing, Etc p.22 11.2 Electronic Signatures p.22 11.3 Stamp Duties p.23
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FRANCE Law and Practice Contributed by: François-Xavier Awatar and Lina Lahlou, Osborne Clarke
Osborne Clarke is an international legal practice that has been providing strategic, on-point advice for more than 250 years and has a presence across Europe, Asia and the USA. Osborne Clarke’s clients range from well-known market leaders to disruptive, high-growth start-ups. The firm’s goal is simple: to help its clients and people succeed in tomorrow’s world. Its focus goes beyond the here and now: Os - borne Clarke looks ahead to the challenges, oppor - tunities and trends on the horizon. As a full-service business law practice across all strategic sectors,
Osborne Clarke’s legal advice is strengthened by its sector insight and deep understanding of the drivers of transformation worldwide. The firm helps clients consider the external factors affecting their business: the rules and regulations, the market they operate in and how global trends are driving change. Estab - lished in Paris since 2013, with over 100 lawyers and legal professionals, including 20 partners, Osborne Clarke is a full-service French business law firm and a member of the Osborne Clarke International network.
Authors
François-Xavier Awatar is a partner in Osborne Clarke’s economic law practice group. He advises French and international corporations, distribution networks, investors and investment funds on all aspects of
Lina Lahlou is a senior associate in the economic law practice group at Osborne Clarke. She advises on distribution law, franchise law and commercial contracts, both in an advisory capacity and in litigation.
commercial law, both in an advisory capacity and in litigation. His practice primarily covers distribution law, franchise law, commercial contracts, competi - tion law and complex commercial litigation. He assists his clients at every stage of their develop - ment: structuring and expanding distribution net - works, international expansion, negotiating commer - cial contracts, conducting legal due diligence in connection with mergers and acquisitions or private equity transactions, and managing litigation before state courts, arbitration tribunals and competition authorities. Osborne Clarke 79 Boulevard Saint-Germain 75006 Paris France Tel: +33 1 84 82 41 10 Email: Francois-xavier.awatar@osborneclarke.com Web: www.osborneclarke.com/fr/locations/france/paris-2
She assists French and international companies at every stage of the creation, structuring and develop - ment of distribution and franchise networks, both in France and internationally. She also assists French and international companies with competition law issues, particularly regarding anticompetitive prac - tices, merger control and restrictive business practices.
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1. An Introduction to Franchising 1.1 Franchise Market Overview The French franchise market constitutes a robust and dynamic sector of the national economy. As of 2025, approximately 2,035 franchise networks were operat - ing throughout France, generating aggregate turno - ver of EUR93.71 billion and accounting for 1,018,038 direct and indirect employment positions. The French franchise market is widely regarded as one of the most mature and well developed in Europe. A significant number of French brands have estab - lished prominent franchise networks across a diverse range of sectors, notably including: • Paul, a bakery chain that has achieved substantial international expansion; • La Mie Câline, a bakery franchise with an extensive presence throughout France; • Yves Rocher, a cosmetics and beauty products brand that has developed a portion of its distribu - tion network through franchise arrangements; • Century 21, a real estate agency franchise currently operating across 82 jurisdictions worldwide; • Fitness Parc, a fitness franchise operating approxi - mately 400 facilities throughout France; • On Air, a fitness franchise operating approximately 200 facilities throughout France and expanding its network internationally; and • Accor, a global leader in the hospitality sector, which has developed an extensive international franchise network encompassing a wide portfolio of hotel brands. France also represents an attractive market for inter - national franchise systems seeking to establish opera - tions within its territory, as evidenced by the following examples: • Burger King, which has established itself as a lead - ing operator in the French fast-food sector; • Starbucks, which has developed its French opera - tions through a master franchise arrangement; • McDonald’s, which operates approximately 1,600 restaurants in France through its franchise model, rendering France its second-largest market globally after the United States;
• The Body Shop, a British brand that has success - fully established a commercial presence in France; and • Engel & Völkers, a prominent international fran - chise in the real estate sector, which has devel - oped a significant presence in the French market. 1.2 Franchise Regulation Under French law, there is no single, dedicated statute governing franchising as such. Rather, the franchise relationship is regulated by a combination of legisla - tive and regulatory instruments drawn from several distinct bodies of law. The General Law of Contract, as Set Forth in the Civil Code (Articles 1101 Et Seq, As Reformed by the Ordinance of 10 February 2016) This constitutes the primary legal framework appli - cable to franchise arrangements. In particular, the principles of good faith in contractual dealings (Arti - cle 1104) and the general pre-contractual duty of dis - closure (Article 1112-1) are of direct relevance. In the absence of franchise-specific provisions, the terms of the franchise agreement itself govern the majority of the rights and obligations arising between the parties. Mandatory Pre-Contractual Disclosure Requirements Pursuant to the Doubin Act (Law No 89-1008 of 31 December 1989) These requirements are codified at Article L. 330-1 of the Commercial Code, which imposes an obliga - tion to provide pre-contractual information upon any person making available a trade mark, trade name or sign subject to an exclusivity or quasi-exclusivity arrangement. The detailed content of the pre-contractual informa - tion document is prescribed by Implementing Decree No 91-337 of 4 April 1991, codified at Article R. 330-1 of the Commercial Code. Additional Legislative Provisions Applicable to Franchising Further provisions of the Commercial Code address related matters, including exclusive supply arrange - ments (Article L. 330-4), post-contractual restrictions applicable to retail distribution networks introduced
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by the Macron Act of 2015 (Articles L. 341-1 and L. 341-2). The legal framework governing franchise arrange - ments is further shaped by the application of the fol - lowing bodies of law: • competition law, including the prohibitions on anti-competitive agreements and abuse of domi - nant position or economic dependence set forth in Articles L. 420-1 and L. 420-2 of the Commercial Code, as well as EU Regulation 2022/720 on verti - cal agreements (the VBER); • intellectual property law, as codified in the Intellec - tual Property Code; and • the law on restrictive trade practices, in particular the provisions of Article L. 442-1 of the Commer - cial Code, which prohibit the creation of a signifi - cant imbalance in the rights and obligations of the parties and the abrupt termination of established commercial relationships, both of which are of par - ticular relevance to franchise arrangements. Applicable Non-Binding Provisions The European Code of Ethics for Franchising sets out the fundamental principles governing franchise rela - tionships and establishes standards of good practice applicable to franchisors and franchisees alike. 1.3 Definition of a Franchise Agreement In France, there is no statutory definition of a franchise. However, the concept has been defined through both European and French case law. Under European case law, a franchise arrangement is one whereby an undertaking that has established itself in a given market as a distributor and has there - by developed a body of commercial methods grants, in return for remuneration, independent traders the right to establish themselves in other markets using its business name and the commercial methods that have proved successful. French case law has further refined this definition by identifying three essential criteria for the characterisa - tion of a franchise agreement:
• the existence of know-how that is identified, secret and substantial, capable of being transmitted and enabling the franchisee to replicate the franchisor’s success by conferring a substantial competitive advantage; • the provision of assistance by the franchisor both at the launch of the franchisee’s business and throughout the performance of the agreement; and • a business name or sign capable of attracting a pre-existing customer base, together with the grant of a trade mark licence. In consideration thereof, the franchisee undertakes to comply with the standards imposed by the franchisor and is required to pay royalties. These three constitu - ent elements have also been incorporated into the European Code of Ethics for Franchising. 2. Franchise Disclosure 2.1 Mandatory Disclosure Pre-Contractual Disclosure Obligation Under the Commercial Code To safeguard the franchisee’s informed consent, Arti - cle L. 330-3 of the Commercial Code – derived from the Doubin Act (Law No 89-1008 of 31 December 1989) – imposes upon the franchisor an obligation to furnish pre-contractual information to the prospective franchisee. The prescribed content of such informa - tion is exhaustively set out in Article R. 330-1 of the Commercial Code. The pre-contractual information document must con - tain the following particulars. • The address of the registered office, the nature of the business activities carried on, the legal form of the entity, the identity of the owner or of the corpo - rate officers and the amount of the share capital. • The company’s registration number and the trade and companies register ( registre du commerce et des sociétés ) with which it is registered, together with the date and number of the trade mark regis - tration or filing. Where the trade mark has been the subject of an assignment or licence, the date and number of the corresponding entry in the National
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Trade Mark Register and the duration of the licence are required. • The company’s bank account details, which may be limited to the five principal bank accounts. • The date of incorporation of the company, together with a summary of the principal milestones in its development – including, where applicable, those of the network – as well as all information enabling an assessment of the professional experience acquired by the operator or by its officers. • A general and local overview of the market for the products or services that are the subject of the agreement, together with the development pros - pects of that market. It should be noted that such general and local mar - ket overviews do not constitute market studies within the meaning of the term; the obligation to carry out a comprehensive market study rests with the prospec - tive franchisee. Particular attention should be paid to this distinction, as the franchisor’s obligation is limited to providing a general and local presentation of the market, whereas the responsibility for conducting a thorough market study, including an assessment of the viability of the proposed location, lies exclusively with the candidate franchisee. Further requirements follow: • a presentation of the network of operators, includ - ing the businesses forming part thereof and their methods of operation, the addresses of the estab - lishments located in France with which the party proposing the agreement is bound by agreements of the same nature as the one contemplated and the date of execution or renewal of such agree - ments (where the network comprises more than 50 operators, the information referred to in the pre - ceding paragraph need only be provided in respect of the 50 establishments nearest to the location of the proposed operation); • the number of undertakings bound to the network by a franchise agreement; • the number of undertakings that have ceased to form part of the network during the year preced - ing the year in which the document was issued, specifying whether the agreement expired, was terminated by notice or was rescinded;
• where applicable, evidence of the existence, within the area of activity of the location specified in the proposed agreement, of any establishment in which the products or services covered by the agreement are offered with the express consent of the party proposing the agreement; • a statement setting out the duration of the pro - posed agreement, the conditions of renewal, termination and assignment, and the scope of any exclusivity; • a draft of the franchise agreement; and • the nature and amount of the expenditure and investments specific to the brand or trade mark that the recipient of the draft agreement is required to incur prior to the commencement of operations. The document containing the foregoing information, together with the draft agreement, must be provided to the prospective franchisee no later than 20 days prior to the execution of the agreement or the payment of any sum whatsoever. Pre-Contractual Disclosure Obligation Under the Civil Code In addition to the foregoing, the franchisor is subject to a general duty of transparency pursuant to Article 1112-1 of the Civil Code. This provision establishes a general pre-contractual obligation to disclose any information the significance of which is determinative of the other party’s consent. This obligation applies in parallel with, and in addition to, the specific disclosure requirements imposed by the Doubin Act. Accordingly, the franchisor is required to inform the prospective franchisee of any informa - tion that would be determinative of the latter’s con - sent, beyond the items expressly prescribed by Arti - cles L. 330-3 and R. 330-1 of the Commercial Code. It is recommended that such additional information also be included within the pre-contractual informa - tion document. Specific Provisions Relating to Financial Forecasts It should further be noted that the provision of finan - cial forecasts to the prospective franchisee is not a legal requirement under French law. However, where the franchisor elects to communicate such forecasts, it may incur liability if they prove to be excessively
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FRANCE Law and Practice Contributed by: François-Xavier Awatar and Lina Lahlou, Osborne Clarke
optimistic or unrealistic. In such circumstances, the franchisee may seek the annulment of the franchise agreement on the grounds of fraud or material mistake vitiating consent, and may additionally claim damages in respect of the loss suffered. 2.2 Consequences of a Failure to Disclose In the event of a breach of the franchisor’s pre-con - tractual disclosure obligations, the franchisee may institute proceedings seeking the annulment of the franchise agreement. Such annulment operates ret - roactively, entailing the mutual restitution of all sums paid under the agreement, including, inter alia, the initial franchise fee and all royalties remitted during the term of the contract. To succeed in such proceedings, the franchisee must establish that its consent to the franchise agree - ment was vitiated by a defect within the meaning of Article 1130 of the Civil Code, thereby depriving the agreement of one of its essential conditions of valid - ity. Among the three categories of defects in consent recognised under French law, the franchisee will most commonly invoke the ground of fraud pursuant to Arti - cle 1137 of the Civil Code. The characterisation of fraud requires the demonstra - tion of both a material element – namely, deliberate manoeuvres, misrepresentations or concealment of information, including the provision of an incomplete or misleading pre-contractual information document, and an intentional element, being the franchisor’s intention to deceive the franchisee in order to induce its consent. In either case, in addition to the annulment of the agreement, the franchisee may claim damages in respect of the loss suffered as a consequence of the franchisor’s breach. Furthermore, pursuant to Article 1112-1 of the Civil Code, the franchisee may seek compensation for the loss of opportunity to have contracted on more favourable terms or to have refrained from contract - ing altogether. In addition to the civil remedies set out in the forego - ing, a breach of the pre-contractual disclosure obli -
gation constitutes a criminal offence punishable by a fine of EUR1,500, in accordance with the applicable provisions of the Commercial Code. 2.3 Franchise Disclosure Exemptions French law does not provide for any exemption from the obligation to deliver the pre-contractual informa - tion document. The experience or sophistication of the prospective franchisee is wholly irrelevant in this regard; the franchisor is required to furnish the docu - ment in all cases, irrespective of the franchisee’s prior knowledge of the sector or of franchise operations generally. 2.4 Franchise Disclosure Language/ Translation Requirements Neither Article L. 330-3 nor Article R. 330-1 of the Commercial Code prescribes any requirement as to the applicable language of the pre-contractual infor - mation document. Notwithstanding the foregoing, Article L. 330-3 of the Commercial Code provides that the document must be such as to enable the prospective franchisee to commit to the agreement in full knowledge. In this regard, the General Directorate for Competition, Con - sumer Affairs and Fraud Control ( Direction générale de la concurrence , de la consommation et de la répression des fraudes – DGCCRF) indicated that a contractual provision stipulating that only the English-language version of the document shall be authoritative may be characterised as creating a significant imbalance within the meaning of the applicable provisions of the Commercial Code. Accordingly, it is strongly recommended that the franchisor furnish both the pre-contractual informa - tion document and the draft franchise agreement in a language that the prospective franchisee is able to understand and, principally, in French, so as to ensure compliance with the aforementioned disclosure requirements and to mitigate the risk of a subsequent challenge to the validity of the franchisee’s consent.
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3. Franchise Registration 3.1 Mandatory Registration
There is no legally prescribed duration for the opera - tion of such pilot establishments, nor is there a man - datory minimum number of pilot locations; these matters are assessed on a case-by-case basis by the courts, having regard to the nature of the business and the circumstances of each case. 5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement French law does not prescribe any minimum or maxi - mum duration for franchise agreements. The determi - nation of the term of the agreement is a matter falling within the contractual freedom of the parties, who may elect to conclude either a fixed-term or an indefinite- term agreement, subject to compliance with the pro - hibition on perpetual commitments set forth in Article 1210 of the Civil Code. It should be noted, however, that the European Code of Ethics for Franchising recommends, at Article 5.5, that the duration of the franchise agreement be set so as to enable the franchisee to amortise the invest - ments specific to the franchise. Notwithstanding the foregoing, where the franchise agreement contains an exclusivity clause, the duration thereof shall be subject to the limitations imposed by applicable competition law (see 6.2 Exclusive Terri- tories and Competing Businesses ). 5.2 Franchise Renewal The franchisee has no vested right to the renewal of the franchise agreement (Article 1212 of the French Civil Code). The parties may contractually provide for the tacit renewal of the franchise agreement or for a renegotiation of its terms upon expiry; however, no such provision is required as a matter of law. Neither the franchisee nor the franchisor is under any statutory obligation to renew the agreement upon the expiration of its term. Compensation Upon Non-Renewal In the event that the franchise agreement is not renewed upon expiry, no compensation is payable to the franchisee as of right, unless the agreement expressly provides otherwise.
Under French law, there is no registration requirement applicable to franchising. Neither the franchisor nor the franchise agreement is subject to any obligation of registration prior to or in connection with the develop - ment of a franchise network within French territory. Notwithstanding the foregoing, it should be noted that the trade mark licence component of a franchise agreement, whilst not subject to any registration requirement as a condition of validity between the parties, must be recorded with the French National Institute of Industrial Property ( Institut national de la propriété industrielle – INPI) in order to be enforce - able against third parties, in accordance with Article L. 714-7 of the Intellectual Property Code. This flex - ibility encourages the establishment of new franchise networks. 3.2 Franchise Registration Process There are no registration formalities for a franchise agreement in France. 3.3 Consequences of a Failure to Register As no specific registration requirement exists in respect of franchise agreements under French law, the question of consequences arising from a failure to register does not arise. French law does not impose any requirement upon the franchisor to demonstrate past profitability across a minimum number of outlets prior to developing a franchise network. However, the franchisor is required to evidence know-how that is both proven and sub - stantial, and must be in a position to demonstrate the commercial success of its concept. In practice, this entails the prior operation by the franchisor of one or more pilot establishments over a period of sufficient duration to establish the viability of the concept. 4. Other Requirements 4.1 Past-Profitability Requirements
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FRANCE Law and Practice Contributed by: François-Xavier Awatar and Lina Lahlou, Osborne Clarke
Goodwill Compensation Under Commercial Agency Laws Under French law, pursuant to Article L. 134-12 of the Commercial Code, a commercial agent is enti - tled, upon termination of the agency contract, to an indemnity in compensation for the loss of the clientele that the agent has brought in or developed on behalf of the principal. For a contractual arrangement to be characterised as a commercial agency agreement, the agent must, in particular, have the power to negotiate and, where applicable, to conclude contracts for the sale of goods or the provision of services in the name and on behalf of the principal. The risk of a franchise agreement being reclassified as a commercial agency contract is extremely limited under French law, given that the franchisee operates as an independent undertaking that purchases goods and subsequently resells them or sells services in its own name and on its own account. 5.3 Termination of the Franchise Agreement Under French law, the parties enjoy full contractual freedom to determine the notice period applicable to the termination of the franchise agreement. Not - withstanding the foregoing, Article L. 442-1 II of the Commercial Code prohibits the abrupt termination of established commercial relationships. A party that terminates such a relationship without prior written notice, or with a notice period that is manifestly insuf - ficient having regard to the duration and nature of the commercial relationship, shall be liable in damages to the aggrieved party. This provision applies irrespective of whether the agreement is concluded for a fixed or indefinite term. The adequacy of the notice period is assessed by the courts on a case-by-case basis, having regard to the totality of the circumstances, including, inter alia: • the duration of the commercial relationship; • the degree of economic dependence of the party to whom notice is given; • the volume of business generated thereunder; • the existence of exclusivity obligations; and
• the investments specifically undertaken in connec - tion with the franchise. It should be noted, however, that Article L. 442-1 II of the Commercial Code provides that a notice period of 18 months constitutes a maximum, the observance of which precludes the terminating party from incurring any liability on this ground. Nevertheless, in respect of fixed-term franchise agreements, early termination by the franchisor in the absence of a demonstrated contractual breach by the franchisee may give rise to an obligation to pay damages for anticipatory termina - tion, in accordance with Article 1212 of the Civil Code. 6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Exclusivity Clauses The franchisor is under no obligation to grant territo - rial or contractual exclusivity to its franchisees. The grant of exclusivity, where applicable, is a matter fall - ing within the contractual freedom of the parties. Where the franchise agreement contains an exclusiv - ity clause, the duration thereof is subject to the fol - lowing limitations: • under French law, pursuant to Article L. 330-1 of the Commercial Code, any exclusive or quasi- exclusive supply commitment must be limited to a maximum duration of ten years; and • under European law, pursuant to EU Regulation 2022/720 on vertical agreements (VBER), the dura - tion of such exclusivity obligations may not exceed five years. An exclusive sourcing clause requiring the franchisee to procure goods or services exclusively from the fran - chisor or from suppliers approved by the latter is valid under French and European law, provided that it is necessary for the replication of the franchise system and the preservation of the network’s identity, and that the franchise confers a genuine competitive advan - tage upon the franchisee.
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