Buying a franchise: who can sign the agreement for each party?

You have agreed the terms and head office sends over the agreement for signature. Before signing, check that the right company is entering into it and that the person acting on its behalf has the necessary authority. In a franchise network, recruitment may be handled by a different company from the one that will actually grant you the licence. Confusion over the contracting company or insufficient authority can complicate both opening your outlet and enforcing the commitments made to you.

1. Distinguish between the brand, the contracting company and its representative

A network’s trading name is not the same as its legal entity. The person presenting the concept to you may be an employee of head office, an external recruiter or a representative of a local partner. A business card, company email address or long-standing involvement in negotiations does not, on its own, establish authority to enter into a franchise agreement.

Start by checking the contracting company’s exact name, identification number and registered office in the draft agreement. Compare these details with its current entry in the relevant public register. Then establish who will sign the document and the basis of their authority.

Ask head office three specific questions:

• Which legal entity will grant the licence and be responsible for the agreed services?
• Is the signatory a member of the company’s statutory governing body, a holder of procuration (a special form of commercial authority), or a representative acting under a power of attorney?
• If they are acting for another company in the group, what authority do they hold from that particular company?

Carry out the same checks for related agreements. Equipment may be supplied by a company other than the franchisor. This is not necessarily a problem, but each agreement must correctly identify the parties and their representatives. Authority to act for one company does not automatically extend to other members of the group.

2. Check how the company must be represented, not just the list of directors

The Czech Republic has no specific franchising act or dedicated statutory regime for franchise pre-contractual disclosure documents. Franchise agreements are usually concluded as contracts not specifically defined by statute under section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Representation is governed by the general rules of the Civil Code; Act No. 90/2012 Coll., on Business Corporations, is also relevant to companies.

It is therefore not enough simply to find a director’s name in the Commercial Register. The registered rules on how the company is represented also matter. A director may be authorised to act alone, but the register may require two directors to act jointly. In that case, one signature may not be enough.

Imagine that the agreement is signed by the commercial director, who is also one of the company’s two statutory directors. If the register requires both directors to act jointly, their role as commercial director does not, in itself, remove that requirement. Any alternative basis for their authority to represent the company must be assessed separately.

Distinguish representation requirements from internal approvals. A requirement for consent from shareholders or an internal investment committee is not automatically the same as a requirement for a second signature. The consequences of missing consent may differ depending on its legal basis. If such consent is mentioned during negotiations, ask a lawyer to establish whether and how it affects the conclusion of the agreement.

3. Check the scope of a power of attorney and the chain of authority

If the agreement is not being signed directly by an authorised member of the company’s statutory governing body, ask for evidence of the representative’s authority. For a power of attorney, check who granted it, to whom, for which acts and whether it is time-limited. Also verify that it was properly granted on the company’s behalf.

Authority to conduct commercial negotiations does not necessarily include authority to enter into an agreement. The document may authorise only the submission of offers or negotiations. Pay particular attention to annexes and related obligations: authority to sign a franchise agreement does not necessarily cover, for example, a separate guarantee.

Your practical checks should cover:

• clear identification of the party granting the authority and the authorised representative;
• a scope of authority that covers the documents being signed;
• any limits, validity period and conditions;
• the authority of the person who granted the power of attorney;
• evidence of any further delegation of authority where an intermediary is involved.

Procuration, known in Czech as prokura, is a special form of commercial authority whose scope is defined by law. It is not the same as an ordinary power of attorney. For a holder of procuration, check the register entry and any requirement to act jointly. For unusual obligations, obtain confirmation that they fall within the scope of that authority.

An electronic signature does not replace these checks. Technical verification of the signatory’s identity does not, by itself, prove that they can bind the company concerned.

4. Check the signature on your own side too

A common complication arises when an agreement is signed while the prospective franchisee is still setting up a company. A Czech limited liability company (s.r.o.) comes into legal existence when it is entered in the Commercial Register, not merely when its founding document is signed.

Under the Civil Code, a person acting in the name of a legal entity before it comes into existence personally acquires the rights and obligations arising from that act. The legal entity may assume its legal effects within three months of coming into existence, but this does not happen automatically upon registration. Arrange the process for doing so with a lawyer in advance.

The situation is different if you sign the agreement in your own name, expecting simply to “transfer” it to your company later. Transferring your position under a contract generally requires the other party’s consent. Insist on a clear written mechanism agreed in advance, rather than relying solely on a verbal promise from head office.

Keep the register extract you relied on, powers of attorney and any approvals with the signed documents. Practical takeaway: before signing, draw up a simple table with the headings “contracting party – signatory – legal basis of authority – signatures required”. Resolve any uncertainty before you send off the agreement or make a payment.