Buying a franchise: register your company before signing

You can start negotiating with a franchise network before setting up your own company. When it comes to signing, however, timing matters: putting the name of a future limited liability company on the agreement does not, by itself, protect you from personal liability. If you intend to operate through a Finnish limited liability company (osakeyhtiö, or Oy), establish who is entering into the agreement, when the company comes into legal existence and who is responsible for obligations incurred during the preparatory stage before you commit. These checks are worthwhile whether you are opening a new outlet or buying an existing franchise business.

1. Distinguish between formation and registration

Signing a company’s memorandum of association and registering the company are two separate steps. Under Finland’s Limited Liability Companies Act, a limited liability company comes into existence upon registration. Before registration, it cannot acquire rights or enter into commitments in its own name in the same way as a registered company.

As a rule, those who decide on and participate in actions taken on behalf of a company before its registration are jointly and severally liable for them. Simply adding “on behalf of a company to be formed” next to your signature does not settle the question of liability. Joint and several liability can mean that a creditor seeks the full amount owed from any one of the people liable.

The Limited Liability Companies Act also sets out when an obligation incurred before registration transfers to the company once it is registered. This may happen, for example, with an action taken after the memorandum of association has been signed. Actions taken before formation are subject to their own conditions. You should therefore not assume that obligations will transfer without checking the documents and the sequence of events.

In practice, the clearest approach is to register the company before signing the franchise agreement itself. A Finnish Business ID (Y-tunnus) or a pending registration application does not, on its own, prove that the limited liability company has come into existence. Check its registration in the Finnish Trade Register.

2. Check the buyer’s name on every commitment

Before opening, you may enter into several separate agreements: the franchise agreement, arrangements for premises, equipment orders, software contracts and various preparatory services. Even if the main agreement is later signed in the company’s name, an earlier order may remain your personal commitment.

Make a list of all offers you have accepted, orders you have placed and documents you have signed. For each, record:

• who is named as the buyer or customer
• who signed and in what capacity
• whether the company was registered at the time
• what payments or other obligations have already arisen
• the basis on which the obligation is intended to belong to the company.

If you entered into an agreement personally, setting up a company does not automatically replace you as the contracting party. Transferring the agreement to the company may require the other party’s consent. In that case, ask for written confirmation both of the transfer and of whether you are released from your original liability. Simply changing the billing address is not the same thing.

Tell the franchisor at the start of negotiations that your own limited liability company is intended to be the contracting party. Ask for the final agreement to show the correct company name and Business ID. Also check that the franchisor’s decision approving the franchisee is consistent with the party details in the agreement.

3. Confirm signing authority and your personal role

Even once the company is registered, you still need to check the signatory’s authority. Under the Finnish Limited Liability Companies Act, the board of directors represents the company. The managing director’s authority to represent it is linked to their duties, and the articles of association or separate company resolutions may contain other provisions on representation.

A franchise agreement may be so significant to the company’s business as a whole that relying solely on your position as managing director is not a safe approach. Check the Trade Register details and any necessary company resolutions. The board minutes can record approval of the agreement and authorisation to sign it.

Read the entire signature page too. In the same document, you may be signing both as the company’s representative and personally, for example by giving a confidentiality undertaking. These are separate roles. Ask for personal obligations to be clearly distinguished so that their scope and duration are understandable.

As a rule, a shareholder in a limited liability company is not personally liable for the company’s obligations. However, this does not remove liability they accept under a separate undertaking, nor does it resolve liability for actions taken before registration. If a clause is unclear, ask directly: does this bind the company, me, or both?

4. Follow Finland’s legal rules when signing

Finland has no franchise-specific legislation and no compulsory registration system for franchise agreements. Registering your own limited liability company in the Trade Register is separate from registering a franchise agreement. Nor is there a statutory requirement for a franchise disclosure document in a prescribed format.

General legislation applies to the contractual relationship. For this issue, the key statute is the Limited Liability Companies Act, which governs when a company comes into existence, how it is represented and liability for actions taken before registration. The Contracts Act includes rules on matters such as contractual validity, authority to act and the adjustment of unreasonable terms. The Unfair Business Practices Act prohibits false or misleading statements in business.

The Finnish Franchising Association’s Code of Ethics is a form of industry self-regulation, not law. It does not replace company registration or determine on your behalf who is liable for a signed commitment.

If the franchisor requires you to sign before registration is complete, have a lawyer review the arrangement before you commit. In particular, clarify interim liability, whether obligations can transfer to the company and what happens if registration does not go ahead. A clause specifying when the agreement takes effect does not, by itself, answer all these questions.

Practical checklist: confirm registration, the correct contracting party and signing authority. Then review all earlier commitments. Do not assume that setting up your own company automatically removes them from your personal responsibility.