Franchisee independence: how to divide authority

When turning an existing business into a franchise, simply passing on the instructions you use to run your own outlets is not enough. A franchisee is an independent business owner operating in their own name and for their own account. In a sustainable franchise network, shared standards therefore need clear boundaries: what you determine as the franchisor, what the franchisee decides, and who takes on obligations towards third parties.

1. Distinguish a franchise partner from an outlet manager

The manager of a company-owned outlet acts within your organisation and their delegated authority. A franchisee runs a separate business, invests their own capital and bears the business risk. The right to use your trade mark and know-how does not make them your branch, employee or agent.

This distinction matters even in everyday decisions. Who hires staff? Who signs the lease? Whose name appears on the equipment invoice? Who can enter into a commitment with a supplier? The answer must not depend on who happened to pick up the phone first.

Before drafting the franchise agreement, list the decisions you currently make for your own outlets. Place each in one of three categories:

• Shared standard: for example, the appearance of the premises or how products and services are presented.
• Independent franchisee decision: for example, selecting staff and organising their work, subject to the law and agreed standards.
• Decision requiring prior approval: for example, a local adaptation of the visual identity.

If most operational decisions still require your personal sign-off, consider whether you are building a partnership model or trying to run someone else’s business as if it were your own outlet.

2. Agree the boundaries within Croatia’s legal framework

Croatia has no dedicated law comprehensively governing franchising, no specific mandatory franchise register and no statutory pre-contractual disclosure template specifically for franchises. This does not mean the parties can disregard general legislation or that the agreement takes the place of the law.

The contractual relationship is subject to Croatia’s Civil Obligations Act (Zakon o obveznim odnosima), including the principles of good faith and fair dealing and the rules on performance of obligations and liability. The Companies Act (Zakon o trgovačkim društvima) is relevant to the organisation and representation of companies, while the Crafts Act (Zakon o obrtu) also applies to businesses registered as an obrt, a Croatian form of individually operated business. Restrictions on business independence must comply with the Competition Act (Zakon o zaštiti tržišnog natjecanja) and applicable European Union rules. Use of a trade mark is also governed by the Trade Mark Act (Zakon o žigu).

The agreement should therefore state clearly that the franchisee operates independently and specify whether either party has any authority to act on behalf of the other. If such authority exists for a particular transaction, its scope must be precisely defined. Membership of a franchise network alone does not confer the right to sign contracts in another party’s name.

Do not rely solely on a clause stating that the franchisor ‘accepts no liability whatsoever’. The contractual allocation of obligations between partners does not remove liability that may arise under mandatory legal provisions or from either party’s own conduct. The final provisions should be reviewed by a lawyer familiar with your business model.

3. Create an authority matrix for day-to-day operations

Alongside the agreement, prepare a simple table that both partners understand. For each recurring task, specify who decides, who signs, who pays, whether approval is required and where the record of the decision is kept.

For recruitment, for example, the franchisor may define the skills needed to meet the standards, while the franchisee, as the employer, selects the employee, signs the employment contract and fulfils the employer’s obligations. Avoid practices in which your employees directly allocate work to the franchisee’s staff as though they were part of your organisation.

When procuring equipment, separate confirmation of technical compliance from the purchase itself. Your confirmation that a piece of equipment meets the standard is not the same as placing an order, guaranteeing payment or assuming the buyer’s obligations.

For decisions requiring approval, specify the communication channel, supporting documentation and response deadline. State explicitly whether a lack of response constitutes approval; do not leave this to assumption. For emergencies, provide a contact and a procedure that allows people and property to be protected without unnecessary delay.

Align the matrix with the agreement and operations manual. Its purpose is to put the agreed powers into practice, not to extend them implicitly.

4. Check that independence is also clear to third parties

A shared trade mark can create the impression that every location is run by the same legal entity. Check that the actual operator and contracting party are clearly identified on invoices, quotations, purchase orders, business correspondence and relevant websites, in line with applicable requirements.

Run a brief test with your team: have a supplier ask for an order, a job candidate submit an application and a landlord propose an amendment to the lease. Does everyone know whom to forward the request to and who has authority to accept it? If the answer is ‘head office will sort it out’, the division of authority is not yet clear enough.

Practical takeaway: before bringing your first partner on board, create an authority matrix, have it legally checked for consistency with the agreement and test it against real business situations. Shared standards protect the identity of the franchise network, while clearly defined independence preserves each partner’s accountability.