Franchisor credibility: check the company behind the brand

When you buy a franchise, you join a community of entrepreneurs, but your contract is with a specific business — not a brand name. Brand recognition does not tell you whether that business has the resources to meet its obligations. Before paying anything, check its identity, financial position and how it explains any concerning information. This due diligence cannot guarantee success, but it can help you avoid making a decision based solely on the brand’s reputation.

1. Establish who your contractual partner will actually be

Ask for the franchisor’s full legal name, Polish tax identification number (NIP) and National Court Register (KRS) number, or the details needed to find the business in Poland’s Central Register and Information on Economic Activity (CEIDG). Compare these with the draft agreement, the document relating to your initial payment and the information provided during recruitment. Do not assume that the brand owner, network operator and business signing the agreement are always the same entity.

Within a corporate group, different companies may perform different roles. One holds the rights to the brand, another signs agreements and a third arranges supplies. This structure is not necessarily a problem, but you need to establish which entity is responsible to you for each key contractual obligation. Membership of a group does not, in itself, mean that the other companies will pay your contractual partner’s debts.

In the relevant register, check in particular:

• whether the business is active and how long it has been operating;
• who is authorised to represent it and whether two or more people must act jointly;
• whether liquidation or other matters requiring clarification have been recorded;
• whether its name, address and identification details match the draft agreement.

If someone is to sign under a power of attorney, ask for the document confirming the scope of their authority. If your contractual partner is a newly established company, find out why it is taking on the relationship and what resources it has. A brand’s long history is not automatically the history of that company.

2. Examine the finances, not just the share capital

For entities that file financial statements with the KRS, check the documents available in the Financial Documents Repository (Repozytorium Dokumentów Finansowych). Review several consecutive reporting periods if the business has been operating long enough. A single set of results may reflect a one-off event rather than the business’s underlying position.

Ask an accountant to analyse the balance sheet, profit and loss account and notes to the financial statements. If a cash flow statement or an independent auditor’s report has been prepared, include those too. Pay attention to:

• recurring losses and the level of equity;
• short-term liabilities relative to available funds and current assets;
• receivables whose recovery may be uncertain;
• dependence on funding from owners or related parties;
• disclosures about risks to the business’s ability to continue as a going concern.

Share capital is not a bank balance or a guarantee of solvency. Equally, an accounting profit does not establish that a business pays its obligations on time.

Financial statements describe the past. Ask about significant changes since the balance sheet date, such as the loss of funding, a change of main supplier or a reorganisation. If the documents are not publicly available, request basic financial information directly. A refusal does not prove insolvency, but it increases the uncertainty you need to factor into your decision.

3. Investigate warning signs in practice

Check Poland’s National Register of Debtors (Krajowy Rejestr Zadłużonych) for recorded proceedings and information concerning your prospective contractual partner. Do not, however, treat the absence of an entry as proof that the business has no debts. The register does not provide a complete picture of all its liabilities.

Cross-check concerning information through conversations with current franchisees and, where possible, people who have left the network. Ask about specific events: delays in payments due to them, the handling of billing adjustments, continuity of supply or sudden demands for additional advance payments. Distinguish documented experiences from opinions and rumours.

Put every significant concern to the franchisor for an explanation. A loss, for example, may result from investment, but it is still worth asking how day-to-day operations are being funded. A delay in publishing documents may have an administrative explanation, but it should prompt a request for the missing financial statements, not automatic reassurance.

Create a simple table recording each finding, its source, the company’s response, supporting documentation and any outstanding questions. This will help prevent an attractive sales presentation from overshadowing unresolved risks.

4. Turn your findings into conditions for proceeding

Under Polish law, a franchise agreement is an ‘unnamed contract’: it is not a separately defined contract type governed by its own dedicated statutory rules. There is no separate act comprehensively regulating franchising, nor a general franchise-specific obligation to provide a statutory disclosure document before signing. There is also no compulsory state register of franchise networks. Registration in the KRS or CEIDG does not constitute official approval of a franchise offer.

The Polish Civil Code is central, including the principle of freedom of contract under Article 353¹ and the provisions on performing obligations and liability for breach. Depending on the circumstances, competition law, rules on combating unfair competition and industrial property law may also apply. A voluntary code of ethics is no substitute for legislation or due diligence on your contractual partner.

If a new company’s stability depends on its owner, discuss with a lawyer whether you can obtain separate, legally binding security from that owner. A statement that ‘the whole group is behind us’ is not enough. Where substantial advance payments are involved, consider making subsequent instalments conditional on the fulfilment of specific contractual obligations.

Practical takeaway: before paying, establish three things: who is responsible, what resources they will use to fulfil the agreement and what evidence supports this. Unresolved discrepancies are a reason to put your decision on hold, even when the brand is well known.