Choosing a legal structure as a new franchisor

Franchising gives your existing business a new role: that of franchisor. You will be building a franchise network, but also taking on new obligations. Before recruiting candidates, you need to be clear about which business will sign agreements, receive fees and provide support. Your current legal structure is a starting point, not necessarily the best long-term solution.

1. Map out your new role and risks

At your own outlet, sales, staffing and day-to-day operations sit within the same business. Becoming a franchisor adds other responsibilities: developing the franchise concept, informing franchisees, organising training and managing the working relationship. This calls for a deliberate choice about liability and how the business is organised.

Start by drawing up two lists. In the first, set out all the activities of your existing business. In the second, list the franchisor’s future responsibilities. For each task, note who will carry it out, what costs it will involve and what obligations you will take on towards franchisees.

Then ask three questions:

• Do you want to keep the operation of your own outlet and your role as franchisor within the same business?
• What resources will both activities need, such as software, training facilities and staff?
• What will happen to franchisee support if your own outlet comes under financial pressure?

This does not mean you should immediately set up several Dutch private limited companies (BVs). The aim is to identify where risks overlap and what your franchise network needs to ensure continuity.

2. Compare legal structures without assuming they offer complete protection

There is no mandatory legal structure for franchisors in the Netherlands. Your choice will depend on factors including liability, arrangements with any co-owners, tax and administrative requirements.

A sole proprietorship (eenmanszaak) can act as a franchisor. It is not a separate legal entity: you, as the business owner, are personally liable for its obligations. New franchise agreements could therefore put your personal assets at risk. Reassess those implications, even if this structure works well for your existing outlet.

A general partnership (vennootschap onder firma, or VOF) may be suitable if you run the business with others. In principle, each partner is jointly and severally liable for the partnership’s debts. Agree not only who will guide prospective franchisees, but also who has authority to enter into binding commitments. Have the rules governing that authority, and how they are registered, checked.

A Dutch private limited company (besloten vennootschap, or BV) is a legal entity and is, in principle, responsible for its own obligations. This does not mean personal liability is always excluded. Personal guarantees and directors’ liability are examples of possible exceptions. A BV also involves incorporation costs and its own administrative requirements.

Ask an accountant or tax adviser to compare the financial implications, and discuss the legal arrangements with a lawyer or Dutch civil-law notary. Do not choose solely on the basis of tax or the image a BV projects. A separate legal entity is only useful if the division of responsibilities also works in practice.

3. Align the contracting party, rights and delivery

If you decide to set up a separate franchise BV, check that it can actually deliver what it promises. A new BV does not automatically have access to your existing business’s brand, software or staff.

Draw up a simple chart covering four areas:

• Contracts: which business will sign the franchise agreements?
• Rights: who owns the rights associated with the franchise concept, and who can authorise their use?
• Delivery: who will provide training, guidance and technical support?
• Financial flows: who will invoice franchise fees, and who will pay shared costs?

Put agreements between the businesses involved in writing. If another business retains ownership of the brand, the franchisor must have sufficient rights to grant franchisees the agreed use of it. Also have an adviser assess what would happen if that internal arrangement ended.

Check existing supplier and software contracts. The fact that your own outlet uses a system does not automatically mean independent franchisees may use it too. Make sure the business signing the new agreements does not promise rights it has not yet secured.

4. Check your arrangements against the Dutch Franchise Act

The Dutch Franchise Act (Wet franchise), incorporated into Book 7 of the Dutch Civil Code, has applied in the Netherlands since 1 January 2021. These rules apply whether the franchisor is a sole proprietorship, VOF or BV. Changing the legal structure therefore does not reduce your statutory obligations towards franchisees.

For example, before entering into an agreement, a prospective franchisee must receive information about, among other things, the franchisor’s financial position. If you have just incorporated a franchise BV, you must not present your existing outlet’s historical results as though they were that BV’s results. Make clear which business the figures relate to and what resources are available for the franchise activities.

The statutory obligation to provide assistance and commercial and technical support also remains with the franchisor when another business carries out the work. Make sure the contracting party has sufficient access to staff, resources and funding.

Finally, arrange the appropriate registration or updates with the Netherlands Chamber of Commerce (KVK). Registration does not constitute approval of your franchise concept. Before signing the first agreement, have someone check that the business name, contracting party, invoicing arrangements and signing authority are all consistent.

Practical takeaway: draw your organisational chart first, then structure your contracts around it. You should be able to explain clearly who takes on obligations, who holds the necessary rights, and how franchisee support is funded and delivered.