Licence or franchise? Assess your business model before you start

You want other entrepreneurs to operate under your business name, using your methods and offering your products or services. A licence agreement may seem like a straightforward first step. Yet it is not the contract’s title that determines which rules apply, but the substance of the arrangements and how they work in practice. If you are building a franchise network in the Netherlands, you should therefore first establish whether the proposed arrangement legally qualifies as a franchise. This assessment helps you avoid discovering statutory obligations only after your first partner has started trading.

1. Identify the four characteristics of a franchise

The Dutch Franchise Act has been in force since 1 January 2021. Its provisions are set out in Book 7 of the Dutch Civil Code, in Articles 7:911 to 7:922. Four characteristics are important when determining the legal status of your arrangement.

• A franchise system: you provide an operational, commercial and organisational system with a consistent identity and presentation. This includes, for example, a trading name or trade mark as well as transferable know-how.
• Both a right and an obligation: the other entrepreneur is entitled to use the system, but must also operate their business in accordance with it.
• A payment: the entrepreneur pays to use the system. This payment does not have to appear on an invoice as a separate franchise fee.
• Independent business ownership: the entrepreneur operates their business for their own account and at their own risk.

Consider each characteristic separately. Simply granting permission to use a brand does not automatically create a franchise. However, a combined package of brand use, business operations, practical knowledge and mandatory application may do so.

Describe exactly what you are transferring. This might include sales methods, recipes, approaches to customers and the organisation of working processes. Know-how is not simply general business knowledge: it means practical information that is secret, substantial and identified, derived from the system owner’s experience and research.

2. Look beyond the contract title and the invoice

Labels such as ‘licensee’, ‘network member’ or ‘collaboration agreement’ do not provide an exemption from the Dutch Franchise Act. Even without a document called a ‘franchise manual’, your instructions may collectively constitute a franchise system.

Suppose you want to expand an existing lunch café through independent business owners. They use your name, follow your preparation methods and must work with a prescribed product range and presentation. You provide training and practical business knowledge. That calls for a franchise assessment, even if you describe the contract as a trade mark licence.

Next, examine how you earn money from the arrangement. An indirect payment, such as a mark-up on mandatory purchases, may legally constitute payment for using the franchise system. The absence of a separate joining fee or monthly franchise fee is therefore not decisive. Not every trading margin automatically counts as such a payment; its role within the arrangement needs to be assessed.

Prepare a simple overview with three columns:

• What does the business partner receive?
• What must they implement or purchase?
• What direct and indirect payments do they make in return?

Include arrangements communicated through presentations, emails and training sessions. A contract promising considerable freedom, while in practice you prescribe an entire way of running the business, warrants particular legal attention.

3. Have the legal status assessed before making commitments

Arrange a legal assessment before making firm offers, requesting payments or asking candidates to invest. Give a franchise lawyer not only your draft contract, but also your commercial proposal, instructions, revenue model and a description of how the arrangement will work day to day.

Ask them to answer three questions:

1. Does the model fall within the statutory definition of a franchise?
2. Which aspects of the arrangements or their implementation make that conclusion uncertain?
3. Which compliance measures must be in place before the first agreement is signed?

For a franchise, you must provide, among other things, the draft agreement and its appendices, information about fees and investments, and the financial information required by law. A statutory period of at least four weeks must then pass before the franchise agreement is concluded. Restrictions apply during this period, including restrictions on requesting payments and investments relating to the proposed agreement.

The legal classification also has implications throughout the relationship. These include providing necessary commercial and technical assistance, sharing information and holding consultations at least once a year. For franchisees established in the Netherlands, the statutory franchise provisions cannot be departed from to their detriment. Giving the contract a different title does not bypass that protection.

4. Reassess as your business model develops

A business relationship can change. You might start by allowing brand use alone, then later add mandatory working processes, training and a shared commercial approach. If so, have the model reassessed to establish whether it has become a franchise.

Make this reassessment part of your decision-making whenever you introduce new obligations. Record what is changing, what knowledge is being transferred and how payments relate to use of the system. This allows your legal framework to grow alongside your franchise network, rather than lag behind day-to-day practice.

Practical conclusion: first describe how the relationship will actually work, then assess its legal status, and only then choose the form of contract. An appropriate name is useful; appropriate terms and compliance with the law are essential.