There is no specific European law (European Directive or European Regulation) regarding franchise contracts. There is, however, a European Franchise Federation headquartered in Brussels which has established a code of good conduct for franchises. Generally, franchise contracts are fairly uniform in Europe, and have the following characteristics in common :
- franchise contracts include;
- a brand license contract;
- an know-how license contract license contract (contained in a package deal). This know-how must be original.
The creation of a franchise chain by a franchisor generally follows a chronology:
- creation of a formula (brand protection and an IP document);
- pilot experience;
- recruitment of franchises (based on the technical, commercial and financial qualities).
Before it is possible for a franchisor to sign a franchise contract, the franchisor must:
- send full pre-contractual information several weeks before the contract is signed which includes the complete identity of the franchisor, the description of the franchise chain, the particulars of the contract (duration, royalties, etc.);
- carry out a serious market study.
Once the royalties contract has been signed, the franchisee must carry out the following essential obligations:
- adhere to the franchise charter (to maintain a consistent identity for the chain);
- receive provisions exclusively from the franchisor for the products or services for the activity of the franchise;
- must not break the anti-compete clause;
- pay royalties.
These royalties are often made up of :
- initial start-up fee, to be paid at the signing of the franchise contract;
- royalties (set amount or proportionate).
As an independent trader, the franchisee remains nonetheless free to choose and responsible for the salary, the suppliers (for products or services which do no enter into the domain of activity of the franchise), the sale price (which cannot be imposed by the franchisor), management, etc.
Finally at the drawing up of a franchise contract, it is essential to ensure that there is a duration for the contract because, as in many countries, the franchisor has no obligation to renew the contract at the expiration of its term.
According to several authors, the franchise is the most successful form of capitalism and consists of three rules:
- the rule of work: we make others work for us;
- the rule of finance: we make the money of others work for us;
- the rule of franchise: we make others work for us, with their own money.