Franchising in Denmark: Distinguishing Law from Ethical Codes

When you turn an existing business into a franchise network, you will encounter legal requirements, ethical codes and recommended practice. They may look similar on paper, but their implications differ. Before promising prospective franchisees that your concept follows a particular code, establish what obligations that promise creates and how the business will fulfil them in practice.

1. Separate legal requirements, membership obligations and your own promises

Denmark has no specific franchise legislation. Franchise agreements are governed by the Danish Contracts Act and general principles of contract law, including freedom of contract. Depending on the activities involved, other legislation also applies, including the Danish Marketing Practices Act, Competition Act, Business Lease Act, Sale of Goods Act and Product Liability Act. Freedom of contract therefore does not mean that the parties can simply override all other rules.

Nor is there a dedicated public franchise register or a requirement to register the franchise agreement itself. Standard business registration and any activity-specific permits are separate matters and must still be dealt with.

Denmark has no franchise-specific statutory requirement to provide a prescribed disclosure package before an agreement is signed. However, this does not mean that a franchisor can withhold material information or present a misleading picture without legal risk. General principles concerning good faith and liability during contractual negotiations may be relevant.

Alongside legislation, there is the European Code of Ethics for Franchising and national ethical codes based on it. These are not Danish law and do not automatically apply to everyone. Their significance may arise, for example, from membership of an organisation or from the parties’ agreement.

As part of your preparations, create three columns: legal requirements, membership obligations and voluntary commitments. Classify each requirement before including it in materials for prospective franchisees.

2. Establish exactly what the business has signed up to

A statement such as ‘we follow ethical franchising rules’ is imprecise. Which code do you mean? Which edition? And does the commitment cover all of the business’s conduct or only particular aspects of the relationship?

If the business belongs to an organisation, obtain its current constitution, membership terms and ethical code. Also check who the membership covers. Membership held by one legal entity should not automatically be presented as a commitment covering every company in a future franchise network.

In particular, review:

• What actions and documents the code requires of the franchisor.
• Whether it sets requirements for testing the concept and gaining experience.
• What expectations it sets for selection and cooperation.
• How the organisation handles complaints and non-compliance.
• How changes to the code affect membership obligations.

Read the rules yourself rather than relying on a brief summary. A recommendation in a guidance document is not necessarily a membership requirement, and a membership requirement is not automatically a contractual term that the franchisee can enforce directly. Its precise legal significance must be assessed separately.

3. Decide what role the code should play in the agreement

There is a difference between using an ethical code as an internal working framework and making it part of the franchise agreement. A broad reference can create uncertainty about the rights it gives the franchisee and the consequences of a breach.

Ask a legal adviser to assess the purpose of the reference. Is the code intended to help interpret the agreement, describe the values underpinning the relationship, or establish binding contractual obligations? Do not leave this question unresolved if you are also actively using the code to recruit franchisees.

A practical approach is to translate relevant principles into specific actions. For example, if a principle concerns allowing reasonable time to assess the proposed relationship, the business’s process should show when prospective franchisees receive the materials and how their questions are handled. This makes the principle workable without presenting an internal deadline as a legal requirement.

Also clarify the relationship between the agreement and the code. What happens if their wording points in different directions? Should later changes to the code affect agreements already signed? Do not insert an automatic reference to ‘the rules in force from time to time’ without considering the consequences for both parties.

4. Make ethical commitments verifiable before recruiting your first franchisee

Ethical promises have practical value only if the business can fulfil them. Assign responsibility for each relevant principle and specify what evidence will demonstrate that the task has been completed. This might be a record of discussions held with prospective franchisees or a reasoned assessment of whether the concept is ready for expansion.

Next, review your website, presentations and standard responses. Remove wording that makes a private code or membership look like official approval. Avoid describing a procedure as legally required if it is actually the business’s own choice.

Finally, ask a member of staff to go through the process as a prospective franchisee. Can they understand what promises the business is making and who is responsible for delivering on them? If not, clarify the wording and allocation of responsibilities before recruitment begins.

Practical next step: Create an overview of the ethical rules you intend to follow, the basis on which they apply, and the person responsible for each task. Then have your agreement and communications with prospective franchisees checked against that same overview.