Buying a franchise: identify the actual contractual model

A well-known brand does not, on its own, define what you are buying into. An invitation to join a franchise network may involve different contractual arrangements, with implications for your earnings, responsibilities and investment. Before comparing sales pitches, check the precise nature of the proposed relationship: a franchise, a distribution agreement, a trade mark licence or a commission-based affiliation arrangement.

1. Distinguish the brand from the proposed contract

The label attached to a commercial offer does not necessarily explain its legal structure. The same brand may use several types of partnership. From your first discussions, ask what contract you will be signing and with which company, then request the full draft and its schedules.

The main distinctions to understand are:

• A franchise generally combines the right to use a trade mark or trading name with the transfer of know-how and commercial or technical support. The franchisee remains an independent business owner.
• A distribution agreement, known in France as a concession, governs the distribution of products on terms agreed with the supplier. It may include exclusivity, but does not in itself guarantee support equivalent to that provided under a franchise.
• A trade mark licence authorises the use of a trade mark within a defined framework. This permission does not automatically mean that know-how and support will also be provided.
• Commission-based affiliation, known in France as commission-affiliation, usually involves an affiliate selling goods in its own name, while the goods remain the property of the principal, in return for a commission. The precise allocation of costs still needs to be examined.

These arrangements can be combined. A contract may, for example, bring together franchising and commission-based affiliation. Do not choose on the strength of the label alone: examine the actual contractual obligations.

2. Follow the goods, the invoices and the money

To understand the business model, ask for a complete transaction to be explained, from a product’s arrival through to any refund to the customer. This often reveals more than the brand’s general presentation.

In particular, ask:

• Who buys the goods, and at what point do they take ownership?
• Who enters into the sale with the customer and is named on the invoice?
• Who collects payment, and who then passes on any share of the proceeds?
• Who bears the risk of unsold stock, theft, damage and returns?
• Do your earnings come from a resale margin or a commission?

Next, request a worked example based on the proposed contractual terms. Show sales, your earnings, the brand’s fees and deductions, and the expenses you must cover as separate items.

For example, not having to fund the purchase of stock may reduce your funding needs, but it does not eliminate staffing, premises or operating costs. An apparently attractive commission rate therefore tells you little, on its own, about the income left after expenses.

Your accountant should be able to reconstruct the financial flows without relying on unstated assumptions. If an answer depends on a separate document, obtain it before comparing offers.

3. Check which legal protections apply

France has no single statutory framework governing every aspect of franchise agreements. General rules on contract law, commercial law, trade marks and competition apply, alongside a specific pre-contractual disclosure regime.

Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law of 31 December 1989, applies where a trade name, trade mark or trading identity is made available in conjunction with an exclusivity or near-exclusivity commitment for the operation of the business. Its application therefore does not depend solely on whether the word “franchise” appears in the contract.

Where these conditions are met, the pre-contractual disclosure document and draft contract must be provided at least twenty days before signing or, where applicable, before any advance payment requested. Article R. 330-1 specifies what this disclosure must contain.

A trade mark licence or distribution agreement may therefore fall within this regime. Conversely, providing a pre-contractual disclosure document, known in France as a DIP, does not automatically turn a commercial relationship into a franchise. Have a lawyer review the arrangement rather than inferring your rights from document titles.

4. Compare commitments, not labels

Prepare the same comparison table for each proposal, covering rights to use the brand, promised services, ownership of goods, earnings, costs you must bear and responsibilities towards customers.

For each entry, identify the relevant contractual clause. A verbal promise of support should not be treated as equivalent to a written commitment. Ask for any services that are decisive in your choice to be clearly set out in the contract, including their scope and any limitations.

Finally, have this table checked against your financial forecast: the forecast must reflect the contract actually being offered, not assumptions based on how another franchise network operates.

Key takeaway: before choosing a brand, make sure you can explain who sells, who owns the goods, who collects payment and who bears each risk. Any uncertainty should be clarified in writing before you commit.