Buying a Franchise Together: How to Set Up Your Business Partnership

Buying a franchise together allows you to pool capital and experience. But trust between two prospective partners is not enough: one may expect a regular income for day-to-day work, while the other wants a return on their investment without being involved in operations. When joining a franchise network, you therefore need clear rules between yourselves as well as an agreement with the franchisor. This guide focuses on buying a franchise through a jointly owned Czech limited liability company (s.r.o.).

1. Clarify who is buying the franchise and who makes the decisions

First, establish who will be the franchisor’s contractual partner. If your jointly owned company will run the business, the franchise agreement, lease and other operating commitments should reflect this. One founder signing an agreement in their own name is not the same as signing on behalf of the company. Do not assume that transferring the agreement to the company later will be automatic.

Distinguish between three separate roles: a shareholder owns a stake, a director manages the company, and an employee carries out agreed work. One person may hold several roles, but each comes with different rights, duties and rules on remuneration. A 50% stake does not, in itself, determine who will order stock or approve payroll.

Before negotiating the final wording of your agreements, write down your answers to these questions together:

• Who will contribute money, and who will work at the premises?
• Who will be a director, and how will they act on the company’s behalf?
• Which decisions can each person make independently, and which require agreement?
• Who will be the point of contact for the franchisor?

The franchisor may have its own requirements concerning ownership structure or the approval of directors. Ask for these early so that your internal arrangements do not conflict with the brand’s terms.

2. Separate ownership, work and additional funding

Setting up the company will not be the last time you need money. The launch may take longer than expected, revenue may fluctuate, and operations may require further cash. An understanding that ‘we will both put in more if needed’ does not settle how much, when or on what terms.

For each initial contribution, specify whether it is a contribution to registered share capital, an additional contribution outside registered share capital, or a loan to the company. These arrangements have different legal and accounting consequences. For a loan, agree the repayment date, any interest and how repayment will rank alongside other liabilities. Discuss the options with a lawyer and an accountant.

Set remuneration for work separately. A partner who runs the outlet should not automatically treat withdrawals from the company account as their salary. Directors’ remuneration, employees’ wages and profit distributions are subject to different conditions. A share of profits is not a guaranteed monthly payment, and both the allocation and payment of profits are subject to statutory restrictions.

Also agree on a process for cash shortages: who will prepare a cash-flow forecast, when you will meet and which funding options you will consider. Address in advance what happens if one shareholder cannot contribute more money. Do not assume that the other will automatically gain a larger stake or the right to remove their partner as a shareholder.

3. Align your shareholders’ agreement with Czech law

The Czech Republic has no specific franchising act. A franchise agreement is generally an agreement not specifically defined by law, concluded under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. There is no specific requirement to register franchise agreements or statutory obligation to provide a standardised pre-contractual franchise disclosure document. However, general rules on pre-contractual dealings and other relevant legislation still apply.

Act No. 90/2012 Coll., on Business Corporations, is also central to relationships within your company. You will therefore usually divide your rules between the company’s constitutional document and a separate shareholders’ agreement. The latter can cover voting, funding and dispute resolution, but it does not automatically replace the constitutional document or decisions by the company’s governing bodies.

Work with a lawyer to determine where each rule belongs. Pay particular attention to authority to act on behalf of the company: an internal requirement for a director to obtain their partner’s consent before committing to major expenditure will generally not, by itself, prevent that director’s signature from binding the company towards a third party.

Also arrange for regular financial reports, access to supporting records and checks on significant payments. Contractual reporting supplements shareholders’ statutory information rights; it should not leave a partner who does not work in the business relying solely on verbal assurances that everything is fine.

4. Plan for disagreements or a change of partner

Equal stakes may be fair, but they can also block decision-making in a serious dispute. Set out a deadlock procedure: a written statement of the issue, a joint meeting, mediation if appropriate, and then a mechanism for resolving the impasse. Day-to-day operations must continue in the meantime under rules agreed in advance.

If one partner is to have the option of buying out the other, specify the valuation method, how an independent expert will be selected, when the purchase price must be paid and how outstanding shareholder loans will be handled. Consider a shareholder’s long-term illness or death as well. These provisions must be consistent with both the company’s constitutional document and the law.

Check how this fits with the franchise agreement: a transfer of shares or change of control may require the franchisor’s consent, even if the same company continues to operate the business. An internal agreement between the partners cannot replace that consent.

Practical takeaway: Before signing the franchise agreement, agree in writing on ownership, remuneration, funding, decision-making and deadlock resolution. Then have the company documents and franchise agreement reviewed together.