Buying a franchise: who should sign the agreement?

Before joining a franchise network, establish who will be legally bound to the brand: the prospective franchisee personally or the company that will operate the outlet. This is not merely an administrative detail. It affects who can demand support, who must pay and how the business documents fit together. Setting up a company after signing does not automatically transfer an agreement signed in your own name to that company.

1. Identify the actual party to the agreement

An offer may be addressed to you as an individual, even though the plan is for a company to run the business. Problems arise when this distinction goes unnoticed until the agreement is signed.

Read the sections identifying the parties and the signature blocks. If the franchisee is a company, the agreement should include its identifying details and specify the capacity in which its representative is acting. Signing as a company manager is not the same as personally becoming the franchisee. However, someone may act in more than one capacity within the same document, so you need to read all the provisions together.

Ask for written answers to four questions:

• Who receives the right to use the brand and operate the business model?
• Who is responsible for paying the agreed fees and other amounts?
• Who can demand the training, support and other services promised under the agreement?
• Is the signatory acting solely on behalf of the company, or also taking on personal obligations?

Check who is on the other side of the agreement too. The entity marketing the brand may not be the entity entering into the agreement. The franchisor’s identity must be unambiguous.

2. If the company does not yet exist, plan the sequence

Negotiations often begin before a company is incorporated. That does not mean you should sign as though the company already exists, or assume that incorporating it later will resolve all earlier commitments.

Portugal’s Commercial Companies Code contains rules on acts carried out before a company is registered, the liability of those involved and the company’s possible assumption of those acts. How these rules apply depends on the circumstances. There is no universal, automatic transfer to the new company of everything its founder has signed.

Before making commitments, agree the appropriate sequence with a lawyer and a certified accountant: incorporation, registration, confirmation of authority to represent the company and signing the agreement. If you need to enter into an agreement earlier, ask for an explicit legal arrangement covering that period.

If you have already signed in your own name and want the company to take your place, you may need to formalise a transfer of your contractual position, with the other party’s consent as required by the applicable rules. Simply changing the billing details is no substitute for this process.

Also ask whether the change requires approval, additional documents or any payment stipulated in the agreement. Knowing these conditions in advance avoids having to rely on later negotiations to put the business into your intended structure.

3. Align the documents with the entity that will operate the outlet

Draw up a list of the essential documents and note the contracting party beside each one: the franchise agreement, premises agreement, initial purchases, services, insurance and employment contracts.

The same entity does not necessarily have to be party to every agreement. However, each difference should have a clear rationale and legal basis. If one company pays the bills and operates the outlet while another entity holds essential contractual rights, check how those rights can be exercised.

Also verify who can represent the company. Portugal’s permanent commercial registration certificate (certidão permanente do registo comercial) provides relevant information about its managers or directors and the rules governing who can legally bind it. Do not assume that any shareholder’s signature will suffice.

Prepare a simple information sheet covering:

• The contracting entity’s name, identification number and registered office;
• The signatory’s name and capacity;
• Documents demonstrating their authority to represent the entity;
• Differences between the parties named in the various agreements;
• Any approvals or steps needed to put matters in order before signing.

Ask your accountant to confirm how expenses already incurred by you as the prospective franchisee should be treated. Keeping invoices is important, but does not, on its own, establish who holds the rights acquired.

4. Understand the legal rules relevant to this decision

Portugal has no specific law governing franchise agreements, no dedicated register of franchisors and no pre-contractual disclosure document with a legally prescribed set of contents.

The applicable rules include those in the Portuguese Civil Code concerning freedom of contract, good faith in negotiations and performance, representation and the transfer of contractual positions. Where a company is involved, the Commercial Companies Code is also relevant. If standard contract terms are used, Decree-Law No. 446/85, as amended, lays down rules covering, among other things, how those terms must be communicated and explained.

The absence of franchise-specific legislation does not mean an agreement can override all legal protections. Nor does it turn the commercial purchase of a franchise into a consumer transaction carrying the same rights as a private purchase.

Practical takeaway: before signing, confirm who acquires the rights, who takes on the obligations and what authority each signatory has. Align your chosen legal structure with the way the business will actually operate — or carefully document any differences.