Buying a franchise: how to check the franchisor and its rights to the brand

A familiar name above the shop does not tell you who will receive your initial fee or who is entitled to grant you a licence. Before joining a franchise network, check two things first: the identity of your contractual partner and its authority to license the brand in Czechia. You can carry out some of these checks yourself; refer any unclear ownership or licensing arrangements to a lawyer before paying a deposit.

1. Know what information you are legally entitled to

The Czech Republic has no specific franchising law. Nor is there a dedicated compulsory register of franchisors or a standard statutory pre-contractual disclosure document for prospective franchisees. A company's entry in the Commercial Register is therefore no endorsement of the quality of its franchise offering.

A franchise agreement is generally concluded as an agreement not specifically defined by law under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. General rules of contract law, licensing provisions and pre-contractual liability also apply. Under Section 1728, parties negotiating a contract must share relevant factual and legal circumstances so that they can establish whether a valid contract can be concluded and make their intention to enter into it clear. This does not, however, create an automatic obligation to provide every document a prospective franchisee requests.

Rights to Czech trade marks are governed by Act No. 441/2003 Coll., on Trade Marks. Regulation (EU) 2017/1001 is also relevant to European Union trade marks. The European Code of Ethics for Franchising is a self-regulatory standard, not Czech law; whether it binds a particular franchisor depends, for example, on association membership or its incorporation into a contract.

Practical implication: do not assume you will automatically receive a complete due diligence pack before signing. Request supporting documents in writing and allow time to review them.

2. Establish who your contractual partner will actually be

Ask for the company's full name, identification number (IČO), registered office and details of the person who will sign the agreement. Compare these details across the draft agreement, payment instructions and any reservation agreement. The company promoting the brand may differ from the one entering into contracts or receiving payments. There is not necessarily anything wrong with this arrangement, but it must be explained.

For basic checks, use:

• ARES, the Czech register of economic entities: verify identification details and links to public registers. The mere existence of a record is not evidence of solvency.
• The Public Register and Collection of Deeds: check the company's statutory representatives, the rules for acting on its behalf, changes to the company and available annual accounts.
• The Insolvency Register: look for any proceedings and check their current status. An insolvency petition does not, by itself, mean that insolvency has been established.
• The Trade Licensing Register: check authorisations for the relevant business activities; this is not a substitute for checking rights to the brand.

Missing accounts or frequent changes of directors are not, in themselves, proof of a problem. They are reasons to ask specific questions. For a newly formed company, ask where the experience, employees and assets attributed to the group actually sit. A financially strong parent company does not automatically guarantee its subsidiary's obligations.

If a sales representative is signing, ask for evidence of their authority. If the register requires several directors to act jointly, do not assume that one director's signature alone is sufficient.

3. Verify an unbroken chain of authority to license the brand

Search the databases of the Czech Industrial Property Office, EUIPO and, where relevant, WIPO for the trade marks under which you will operate. Check the owner, registration status, territorial coverage and list of goods and services. An international registration does not, by itself, provide protection in every country. Likewise, an application is not the same as a registered trade mark.

Compare the exact marks: a word mark and a graphic logo may have different owners and different scopes of protection. Ownership of an internet domain or a company name alone does not establish the right to grant a trade mark licence.

If the franchisor is not the owner, request evidence of the chain of authority from the owner through to you. For a Czech master franchisee, it is particularly important to establish whether it may grant sublicences covering Czech territory and your intended business activity. Check the duration of its rights too: these should not expire before the proposed franchise term without an explanation.

The full upstream agreement may contain trade secrets. A relevant extract or a review by an independent lawyer under a duty of confidentiality may be an acceptable solution. A salesperson's assurance alone, however, is no substitute for evidence that the right to grant a licence actually exists.

4. Complete your checks before paying

Draw up a simple table recording each point to be verified, the supporting document supplied, any discrepancy found and the explanation requested. Keep copies of register extracts showing the date checked, email confirmations and the specific version of the draft agreement. Verify the key details again before signing.

Require the agreement to include a statement by the franchisor confirming its authority to grant the agreed rights, and provisions addressing liability if that statement is untrue. With a lawyer, also assess how any third-party claim challenging your use of the brand would be handled. A general statement that “the brand belongs to the group” is not enough.

If you are asked to pay a reservation fee before completing your checks, agree in writing what it is for, who will receive it and the conditions for a refund if the necessary rights are not substantiated. Pressure to pay quickly is no reason to skip due diligence.

Practical takeaway: before transferring any money, obtain evidence of who you are dealing with, who owns the brand and the legal basis on which you may use it. Resolve any unexplained discrepancies before making a commitment.