Launching a franchise: permits and authorisations to operate

When expanding a successful business into a franchise network, it is easy to take the legal requirements for operating for granted. Your own business already has the necessary notifications, qualifications and permits in place, but each new franchisee starts as an independent business. Anything previously dealt with for your business needs to be checked again for theirs. Before signing your first franchisee, prepare a compliance plan that clearly separates the right to use the brand from the legal requirements for carrying out the business activity.

1. Separate franchise rights from operating permits

Hungary has no standalone, comprehensive franchise act, but that does not mean franchise agreements are unregulated. Act V of 2013, the Hungarian Civil Code, specifically recognises franchise agreements, defining them in Section 6:376. The general rules governing contracts apply alongside these specific provisions.

A franchise agreement allows the franchisee to use the rights and protected know-how associated with the system. However, it does not, by itself, authorise activities that require a permit or replace any prescribed professional qualification. Franchisees sell in their own name and for their own account, so the legality of their operations must be checked separately.

There is no general requirement for state franchise registration, nor is there a standard pre-contractual disclosure document prescribed by a separate franchise act. The Civil Code’s duties to cooperate and provide information nevertheless apply. An industry code of ethics is not regulatory approval and does not replace compliance with the law.

The actual requirements depend on the activity. For retail and other trading activities, for example, Act CLXIV of 2005 on Trade and Government Decree 210/2009 (IX. 29.) on the Conditions for Conducting Trading Activities may be relevant. Consumer protection, occupational health and safety, fire safety and food safety rules may also apply.

2. Create an activity-based requirements checklist

Do not start by copying the files from your existing business. First, describe exactly what the franchisee will do: what they will produce, what they will sell, which services they will provide and which sales channels they will use. On-site consumption, delivery or an additional service may each create different obligations.

Then assign requirements to check against each activity. Your working table should include at least the following:

• Activity: which specific operation does the requirement relate to?
• Requirement: is a permit, notification, registration or qualification needed?
• Responsible party: which business or individual must meet the requirement?
• Competent authority: where can the requirement be checked and the procedure completed?
• Evidence: which document demonstrates compliance?
• Timing: what must be in place before opening?
• Change management: which subsequent changes must be notified or reassessed?

Registering a business activity code does not, in itself, prove that all operating requirements have been met. Check qualification and licensing requirements against current legislation and official guidance, seeking expert advice where necessary.

For every item, also record the date and source of the check. If a requirement does not apply, explain why. This prevents a blank field from being mistaken for an issue that has already been reviewed and resolved.

3. Assign responsibility for every opening requirement

Within a franchise network, the distinction between central support and the franchisee’s own obligations can easily become blurred. The franchisor may provide template forms, arrange expert consultations or compile a checklist. That does not automatically make the franchisor legally responsible for the relevant regulatory procedure.

In the agreement and its opening schedule, clearly specify who prepares the documents, who submits them, who bears the associated costs and who monitors progress. The parties’ internal allocation of tasks cannot override statutory responsibility.

Requirements tied to an individual need particular attention. If an activity requires someone with an appropriate qualification to be involved, do not settle for the franchisee saying they will ‘hire someone later’. Clarify how the qualification will be verified, what form of involvement is required and how the business can continue operating if that person leaves.

The brand’s internal approval to open is not regulatory authorisation. Make this distinction clear in the documentation too. Equally, meeting a regulatory requirement does not automatically mean that the franchisee has satisfied every opening condition in the franchise agreement.

4. Document completion of the opening requirements

Carry out a separate document review before the planned opening. Do not simply ask whether ‘the paperwork is under way’; establish when the activity may legally begin under the rules governing the relevant procedure. An acknowledgement of submission is not always sufficient, although not every notification requires a separate decision granting permission.

Use simple status labels: met, in progress or outstanding. Every item in progress should have an assigned owner and a next step. It must not be possible to sign off an unmet statutory opening requirement as an accepted commercial risk.

Agree in the contract what happens if there is a delay: how the opening date may change, which preparatory work can continue and who bears each cost. This is particularly important if the franchisee has already hired staff or advertised the opening.

The checklist must also be updated later if a new service is introduced, the operator changes, there is a significant operational change or legislation is amended. Do not assume that the version prepared for the first outlet will suit every subsequent franchisee without adjustment.

Practical takeaway: before the first franchisee opens, every mandatory requirement should have a named owner, a verified legal basis and acceptable evidence of compliance. Build the growth of your franchise network on documented authorisations to operate, not verbal promises.