Buying a franchise: Who contracts with the customer?

A shared name and website can make a franchise network look like a single business. Legally, however, what matters is which business the customer is dealing with. Before buying a franchise in Denmark, you should therefore trace an order from purchase through to payment and any subsequent complaint. This will show you which revenues and obligations you are actually taking on.

Distinguish between a franchisee and a commercial agent

A franchisee normally trades in their own name and on their own account. This typically means that your business sells the goods or services to the customer and bears the financial risk of the sale. The franchisor provides the business concept and may also supply the goods, without necessarily being the customer's contracting party.

A commercial agent has a different role: the agent acts on behalf of another business by obtaining orders or entering into agreements in that business's name. The Danish Commercial Agents Act covers agency arrangements for the purchase or sale of goods and may provide rights that an ordinary franchisee does not automatically have, including, under certain conditions, an indemnity on termination.

The title of the agreement does not, on its own, determine the legal nature of the relationship. If you both run your own shop and arrange sales for the franchisor, these activities may need to be assessed separately. You should not base your financial plans on having commercial agent rights simply because your payment is called commission.

Ask a lawyer to assess the actual division of responsibilities if the franchisor sets the customer contract terms, receives payment and then pays you a share. This may simply be routine payment administration, but it could also indicate a different allocation of roles from the one you expect.

Map the customer's purchase across each sales channel

Start by asking for examples of terms and conditions of sale, order confirmations, receipts and invoices. Review in-store sales, website sales and any orders placed through an app. The legal seller may differ from one channel to another.

Draw up a simple overview using these questions:

• Which business and which CVR number (Danish business registration number) are listed for the seller?
• Who accepts the customer's order and undertakes to deliver it?
• Who receives the money, and on whose behalf?
• Who should the customer contact about defects, cancellations or refunds?
• Who enters into any subscription contracts and issues gift cards?

Pay particular attention to orders where the customer pays centrally but collects the goods or receives delivery locally. The fact that your business hands over the goods does not necessarily mean it is also the seller. Equally, centralised payment processing does not necessarily relieve you of the seller's obligations.

Work through a practical example: a customer orders on the chain's website, collects from you and later wants to complain. Ask the franchisor to explain who handles the complaint, who issues the refund and how the cost is allocated internally. The answers must be consistent with both the customer terms and the franchise agreement.

Understand the Danish rules behind the allocation of roles

Denmark has no specific franchise legislation, no franchise-specific registration scheme and no statutory standard disclosure package that must be provided before an agreement is signed. General business registration requirements still apply.

The franchise agreement is governed, among other things, by the Danish Contracts Act and general principles of contract law. Freedom of contract is the starting point, but legislation including the Danish Competition Act and Marketing Practices Act can limit what the parties may agree and do. General duties of loyalty and disclosure may also require material information to be disclosed before signing.

The rules governing dealings with customers depend on the type of sale. The Danish Sale of Goods Act is central to sales of goods, while the Danish Consumer Contracts Act is relevant, among other things, to distance sales to consumers. The Marketing Practices Act affects how the seller and the offer are presented. An internal division of responsibilities must not be used to override the customer's mandatory statutory rights.

It is therefore not enough for the franchise agreement to state that head office handles all complaints. If your business is the seller, you need to establish how its obligations will be met in practice. An internal agreement for reimbursement by the franchisor does not mean you are free from customer claims.

Align payment arrangements with responsibility

Once your role is clear, examine the flow of money. If the franchisor receives customer payments on your behalf, the agreement should set out payment deadlines, documentation requirements and any rights to withhold or offset amounts. Also clarify what happens to customer payments that have not yet been passed on if the relationship or payment arrangement ends.

Ask your accountant to check whether the financial projections account for turnover correctly. The customer's full payment and a commission for arranging the sale are not the same financial basis. This distinction also affects how you should interpret the chain's comparative figures.

You should also agree a procedure for refunds and gift cards across the franchise network. If you are required to honour a gift card sold by another business, you need to know both your entitlement to reimbursement and what documentation is required.

Practical takeaway: Sign only once you can answer three questions for every sales channel: Who sells, who receives the money, and who fulfils the obligations to the customer? Have any inconsistencies in the agreements and customer terms corrected before opening.