Buying a master franchise in Portugal: what to assess

Buying the rights to a brand in Portugal can mean taking on a very different role from running a shop. With a master franchise, your investment may involve recruiting and supporting other franchisees. Before entering this market, establish whether you are buying a business to operate yourself or taking responsibility for developing a network.

1. Confirm whether you can actually sub-franchise

The term ‘master franchise’ should not replace a clear description of the rights you are acquiring. The key question is whether the agreement allows you to enter into franchise agreements with third parties, on what terms and with how much autonomy.

Distinguish between three possibilities:

• Single-unit franchise: you run one outlet or operation, with no right to grant franchises to third parties.
• Development of multiple company-owned units: you commit to opening and running several operations, but do not necessarily have the right to sub-franchise.
• Master franchise: you acquire rights that may include building a network of sub-franchisees, within agreed limits.

Ask the franchisor for an outline of the contractual relationships: who contracts with whom, who receives payments and who is responsible for support. If future franchisees will sign directly with the brand, clarify whether your role will simply be to recruit candidates or provide local services.

Also confirm which decisions require the brand’s approval: selecting candidates, choosing locations, adapting the concept and setting the terms of local agreements. A sales promise of autonomy is not enough if every significant decision requires authorisation.

2. Assess your capacity to support a network

Running a single unit and supporting several business owners are different tasks. A prospective master franchisee should assess whether they can establish a local team and systems for recruitment, training, operational support and problem-solving.

Request a written matrix allocating responsibilities between the brand, the master franchisee and the sub-franchisees. For each task, identify who carries it out, who bears the cost and who is accountable if the service is not provided.

Some questions are particularly important:

• Who adapts the materials and procedures to the Portuguese market?
• Who checks whether candidates are capable of running the business?
• Who delivers training and supports the first openings?
• Who provides support when several units need help at the same time?
• Who handles complaints from sub-franchisees about the network’s services?

Try a simple exercise: imagine that two units are opening while a third is experiencing difficulties. Identify the people and resources needed to address all three situations. If the entire operation depends solely on you, that is a weakness you should resolve before signing an agreement.

3. Separate expansion income from ongoing costs

The purchase price of the rights does not represent the full financial commitment. In addition to any units you operate yourself, you may need a support infrastructure for other franchisees before the network is sufficiently developed.

Organise your analysis into three categories: payments to the brand, investment in the Portuguese support infrastructure and recurring costs of supporting sub-franchisees. Do not confuse income from your own units with income earned from managing the network.

If you receive a share of payments made by sub-franchisees, clarify when you become entitled to that share, when the money is transferred and what happens in the event of late payments, refunds or withdrawals. Also confirm who issues invoices and ask an accountant to review the tax treatment of these payment flows, particularly if the brand is based in another country.

Test a scenario in which no new sub-franchisees join for some time. Would recurring income cover the services you have promised? A structure that depends on new entrants to meet existing obligations calls for particular caution.

Also check whether the expansion timetable includes opening commitments that require you to invest your own funds if you cannot find suitable candidates. Do not assume that simply demonstrating recruitment efforts will satisfy an obligation to open units.

4. Review the legal framework for the chain of agreements

Portugal has no specific franchising law, nor a dedicated regime universally requiring a pre-contractual disclosure document in a fixed format and within a fixed timeframe. Master franchising has no separate legal regime either.

General legal rules apply, including freedom of contract under Article 405 of the Portuguese Civil Code and good faith in negotiations and contractual performance under Articles 227 and 762(2). Where standard contract terms are used, Decree-Law No. 446/85 of 25 October is relevant. The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law of general application.

Ask a lawyer to review the master agreement alongside the draft agreement intended for sub-franchisees. The obligations you take on towards sub-franchisees should not depend on rights or services that the brand does not guarantee you.

It is essential to establish what happens to local agreements if the master agreement ends: whether they continue, whether they may transfer to the brand, access to systems and responsibility for support. Do not assume that any such transfer will be automatic.

Practical conclusion: proceed only when you can explain, in writing, which rights you will receive, which services you must provide and how you will fund them without continually relying on new franchisees joining.