Parties to a franchise agreement: check who is signing

When you turn your existing business into the basis for a franchise network, reaching an understanding with a prospective franchisee does not yet establish who your contractual partner will be. The person negotiating, the future owner and the person signing the agreement may have different roles. Checking the parties carefully helps prevent payments, rights of use or personal commitments from being assigned to the wrong person or entity.

1. Distinguish between the entrepreneur, the franchisee company and its representative

Franchising is based on cooperation between legally and financially independent businesses. Finland’s public service portal, Suomi.fi, points out that entrepreneurs are responsible for setting up and financing their own businesses and bearing the associated business risks. As the founder of a franchise network, you should therefore distinguish between selecting an individual as a franchisee and deciding which business will ultimately enter into the agreement.

If your partner is a limited liability company, the contracting party is generally the company, not its shareholder. An owner does not become personally liable for all contractual obligations simply by signing the agreement as the company’s representative. If the partner operates as a sole trader, however, the entrepreneur and the business are not separate legal persons in the same way.

Create a contracting-party checklist for each new partner, recording:

• the contracting party’s official name, Finnish Business ID (Y-tunnus) and legal form
• its registered office and the contact details to be used for contractual notices
• the person responsible for day-to-day business operations
• the signatory and the basis of their authority to represent the business
• any separate personal commitments.

Carry out the same checks on your own business. The network name or trade mark used in negotiations does not, on its own, identify the franchisor. The agreement must make clear which business grants the right to use the concept, invoices the fees and provides the agreed support.

The checklist is an internal verification tool, not a new agreement. Its details must match the final contract. Appoint someone in your business to update it before signing and notify those responsible for invoicing and franchisee support of any changes.

2. Resolve the position of a company yet to be registered before making commitments

A prospective franchisee may negotiate the agreement before their limited liability company has been registered. This is materially different from an existing company entering into an agreement. Under Finland’s Limited Liability Companies Act, a company comes into existence upon registration. A proposed name or a signed memorandum of association does not, by itself, mean that a registered company exists.

The clearest practical approach is to enter into the final franchise agreement only once the company has been registered. If the timetable requires an earlier commitment, ask a lawyer to draw up an arrangement for the company being formed. This must address, among other things, who is liable for actions taken before registration and on what basis obligations will transfer to the company.

Simply using the phrase “on behalf of a company to be formed” does not resolve every question of liability. The Limited Liability Companies Act contains provisions on liability for actions taken before registration and the transfer of obligations. How these apply depends on the details of the arrangement.

Also agree the practical steps in writing: when evidence of registration must be provided, what may be done before then and what happens if the company is not established. Do not create system accounts, hand over the full set of concept materials or begin training merely because you know the future company’s name. Decide separately which preparatory activities are permitted and which agreement governs them.

If an individual has already signed an agreement in their own name, forming a company does not automatically change the contracting party. Any transfer of the agreement and release of the original party from liability must be dealt with separately.

3. Check authority to sign and any separate liabilities

Before signing, check an up-to-date extract from the Finnish Trade Register and, where necessary, the articles of association, a power of attorney or an appropriate corporate resolution. A prospective franchisee’s shareholding, your familiarity with them or their role as a contact person does not, in itself, establish their authority to represent the company.

Pay particular attention to requirements for joint representation. If two people must represent the company jointly, one signature alone does not satisfy that requirement. Nor should a managing director’s position be treated as giving unlimited authority to enter into any agreement on the company’s behalf. For a long-term franchise agreement, the basis of the signatory’s authority should be checked carefully.

An electronic signature helps verify the signatory’s identity, but does not, on its own, establish their authority to bind the company. Keep the documents used for verification, together with the date of the checks, alongside the version being signed.

If the network requires a personal guarantee or another separate commitment from the owner, address it transparently as a distinct liability. Define which obligations it covers, how long it remains in force and how the extent of liability is determined. Guarantees are governed by Finland’s Act on Guarantees and Third-Party Pledges; the applicable protective provisions must be assessed in light of the guarantor’s status.

Do not use an ambiguous signature line that makes it appear that someone is signing both as the company’s representative and in their own name. The capacity in which each signature is given must be clear.

4. Make these checks a standard procedure

Finland has no separate franchising act, no specific requirement to register franchise agreements and no statutory franchise disclosure form. This does not remove the obligations imposed by general legislation. The Finnish Contracts Act governs matters including contract formation, authority to act and the adjustment of unfair contract terms. The Limited Liability Companies Act governs company formation and representation. Other applicable legislation includes the Finnish Competition Act, EU competition rules and the Unfair Business Practices Act.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation to which its members commit. It does not replace the law or the need to verify authority to represent a company. Ordinary registration of a business in the Trade Register is also distinct from any franchise-specific registration.

Introduce a clear approval step before signing: do not send an agreement for signature until the contracting party, its registration status, authority to represent it and any personal commitments have been checked. Then compare the party details in the agreement with the intended recipients of invoices and access rights. This prevents an incorrect business name from being carried straight into your operational systems.

Also agree that the franchisee must report material changes to company and contact details. A change of ownership is not the same as a change of contracting party, so these must be handled separately in accordance with the agreement.

Practical checklist: verify the correct business, its legal existence and the signatory’s authority. Record personal liabilities separately. Only then sign the agreement and activate the agreed services.