Franchising in Croatia: what to disclose to prospective franchisees before signing

When turning an existing business into a franchise, showing a prospective franchisee a successful outlet and offering them a contract is not enough. They need information that allows them to assess the investment, obligations and risks. A well-prepared pre-contract information pack helps both parties: the prospective franchisee can make an informed decision, while the franchisor reduces the risk of misunderstandings about what was actually promised.

1. Distinguish legal requirements from good practice

Croatia has no specific franchise law or legally prescribed format for pre-contract franchise disclosure. Nor is there a general statutory franchise disclosure period requiring all franchisors to provide such a document a set number of days before signing. This does not, however, permit withholding material facts or presenting a business opportunity in a misleading way.

Negotiations and the contract are governed by the Croatian Civil Obligations Act, including the principle of good faith and fair dealing and the rules on liability for conducting negotiations contrary to that principle. Depending on the nature of the relationship, the Croatian Competition Act, EU competition rules, the Croatian Trade Mark Act, Companies Act and Trade Act may also be relevant. The business activity itself is subject to the applicable sector-specific regulations.

There is no general requirement to register a franchise in a dedicated state franchise register. A directory or register of franchise opportunities is not the same as regulatory approval. Likewise, older professional commentary stating that every franchise agreement must be notified to the Croatian Competition Agency should not be presented as a current general rule.

The European Code of Ethics for Franchising can serve as a good-practice standard, but it is not Croatian law. Whether it is binding through membership or contractual acceptance should be checked separately.

2. Prepare a pack that reflects the current state of the franchise system

The information pack should be a separate, dated document with a version number. Its purpose is not to repeat the sales brochure, but to explain clearly what the prospective franchisee will receive and what has not yet been tested.

Include at least:

• The franchisor’s identity: company name, registered office, Croatian personal identification number (OIB) and the person authorised to conduct negotiations.
• The system’s track record: how long it has been operating, which outlets are company-owned and which are franchised, and what has been tested in the pilot operation.
• Brand rights: who owns the trade mark, where it is protected and whether it is merely the subject of an application rather than a completed registration.
• Support provided: initial training, help with opening, access to advice and how compliance with standards is monitored.
• Key restrictions: territory, suppliers, online sales, the franchisee’s personal involvement and exit terms.

If you do not yet have any franchised outlets, say so explicitly. The success of a location managed daily by its founder does not prove that the model works equally well under an independent franchisee. Also explain which tasks remain the prospective franchisee’s responsibility, such as checking the permitted use of the premises or securing the approvals needed to operate.

3. Show the total investment, not just the initial franchise fee

Prospective franchisees need to distinguish fees payable to the franchisor from other expenditure needed to open and sustain the business. Prepare a breakdown by category: initial franchise fee, fit-out, equipment, opening stock, rent and deposit, training, travel, software and working capital.

For each item, state whether it is a contractually fixed amount, a supplier quotation or an estimate. Specify whether the figures include VAT and when payment becomes due. For recurring fees, explain the calculation basis, payment due dates and any minimum amount. The phrase ‘percentage of turnover’ is not precise enough without a definition of turnover.

Present actual financial results separately from projections. If you use figures from a company-owned outlet, state the period, type of location and any relevant distinctive circumstances. Include a realistic market-rate cost for a manager, even if the owner currently performs that role without drawing a separate salary.

A projection is not a guarantee of earnings. Set out the assumptions about sales, rent, staffing and seasonality, and explain how changes to those assumptions affect the result. Do not present the best month at the best-performing outlet as the expected standard across the network.

4. Establish procedures for delivery, confidentiality and review time

Set an internal procedure under which every serious prospective franchisee receives the same core pack, draft agreement and relevant appendices early enough to obtain independent legal and accounting advice. Clearly identify your own review period as a business practice, not a statutory deadline.

You can disclose confidential operational details in stages, under an appropriate confidentiality agreement. However, confidentiality should not be used to withhold information needed to assess the investment. A summary of the operations manual’s contents can demonstrate the scope of the standards without revealing all your trade secrets.

Keep records of the version supplied, the delivery date and the prospective franchisee’s questions. An acknowledgement of receipt proves delivery, but does not correct inaccurate information or remove liability for it. If fees, territory or support change materially before signing, provide an update and allow time for a fresh assessment.

5. Check consistency with the agreement

Before signing, compare the information pack, sales presentation and agreement. Promised territorial exclusivity, the scope of training and the refund terms for any reservation payment must be consistent across the documents. Verbal promises made by the sales team also need to be monitored.

Have a lawyer review the legal provisions and an accountant review the financial information. Restrictions on pricing, sales and territory deserve particular attention, as freedom of contract is not unlimited.

Practical takeaway: before asking for a signature or payment, prepare a dated pack that clearly distinguishes verified results, estimates and contractual obligations. Transparency is the first test of whether your business is ready to become a franchise network.