Buying a franchise: when to set up your company

Before entering the franchise market, you need to decide not only which brand to choose, but also who will acquire the contractual rights: you as an individual or a company. The order in which you form the company, sign the agreement and make the first payments has practical consequences. An agreement in your own name does not automatically transfer to a company you set up later.

1. Decide who will operate the business

Start with a joint meeting with your accountant and lawyer before finalising the draft agreement. A sole trader’s business is not a separate legal entity from its owner. By contrast, a company with legal personality can enter into contracts in its own right, through its legal representative. The implications for liability, taxation, social insurance and management depend on the legal structure you choose.

Do not choose a company structure simply because it appears inexpensive to set up. Consider who will contribute funds, who will manage the business, how decisions will be made and what will happen if one of the partners stops taking part in day-to-day operations. Where several people are involved, roles need to be clearly allocated from the outset.

Also ask the franchisor to clarify in writing:

• Whether it accepts the company structure you are considering.
• Whether it requires a particular person to act as manager or active partner.
• Whether it places restrictions on who may hold an ownership interest.
• Whether its approval of your application covers you personally or also the future company.

Approval of your business profile does not necessarily mean that any company structure you choose has also been approved.

2. Distinguish company formation from franchise approval

Greece has no dedicated law providing a comprehensive framework for franchise agreements, nor a special register in which these agreements are recorded. The main rules that apply are the general provisions of the Greek Civil Code on contracts and obligations, alongside company, tax and other legislation relevant to the particular business activity.

Registration with Greece’s General Commercial Registry (GEMI), where required, concerns the business and its public disclosures. It does not constitute state approval of the franchise agreement, certification of the franchisor or an assessment of the investment’s viability.

For eligible company structures and circumstances, formation can be completed through the electronic One-Stop Service. The appropriate procedure depends, among other things, on the legal structure, the articles of association and any special requirements. Your accountant and lawyer should confirm which supporting documents and steps are needed in your case.

Neither forming a company nor obtaining a Greek tax identification number (AFM) is enough on its own to open an outlet. The requirements for operating legally must be considered separately. Plan the formation around the commitments the company needs to make, without assuming that it fulfils every administrative obligation.

3. Do not sign personally on a promise of transferring the agreement later

Treat the suggestion “sign now and we will put the company’s name on it later” with particular caution. If you sign in your own name, you may become the franchisee under the agreement. Forming a company later does not, by itself, change either the holder of the licence or the party responsible for contractual payments.

Likewise, signing on behalf of a company yet to be formed is not a mere formality. The rules governing acts before formation, the liability of those acting and the assumption of the resulting obligations differ according to the company structure. Do not use improvised wording without legal advice tailored to your circumstances.

If an interim agreement is needed, ask for it to specify:

• Who is bound until the company is formed.
• Which obligations they take on during that period.
• How the contracting party will be replaced, and whose consent is required.
• Whether and when the original party is expressly released from liability.
• What happens if the company is not formed on time.

Greece does not require a specific pre-contractual disclosure document for franchising, nor does it provide a specific statutory cooling-off period for franchise agreements. General duties of good faith during negotiations still apply. However, these are no substitute for checking the identity of the contracting party before you sign.

4. Align the agreement, supporting documents and authority to sign

Before signing the final agreement, bring together the articles of association, GEMI registration and AFM details, and the documents establishing who represents the company. Check whether a company resolution is required for this particular commitment and whether the signatory has the necessary authority.

The name and details in the agreement must match the business that will operate the franchise. Coordinate the lease, equipment orders, bank account and invoicing as well. If you have already made payments personally, your accountant should assess how they can lawfully be documented and treated in the accounts; simply recording them informally as company expenses is not enough.

Practical takeaway: before making a commitment, agree who is buying the franchise and when that entity will legally come into existence. Then check that every signature, payment and supporting document is consistent with that choice.