Franchising in Portugal: preparing the pre-contractual information pack

Turning an existing business into a franchise network takes more than a convincing sales presentation. Before recruiting your first franchisee, prepare a pre-contractual information pack: an organised set of information that allows candidates to assess the investment and understand the commitment involved. Portugal has no specific mandatory legal template for this document, but it helps fulfil the duties of disclosure and good faith during negotiations.

1. Understanding the duty to disclose information in Portugal

Portugal has no franchise-specific legislation, nor does it require a franchise disclosure document in the format and within the timeframe prescribed by Brazilian law. There is also no specific compulsory register of franchisors, although general company registration, tax and sector-specific obligations still apply.

This does not mean that relevant facts can be withheld. Article 227 of the Portuguese Civil Code requires good faith in the negotiation and formation of contracts. Omitting material information or presenting it misleadingly may give rise to pre-contractual liability and, depending on the circumstances, other legal consequences.

Freedom of contract is established by Article 405 of the Civil Code. Where standard contract terms are used, Decree-Law No. 446/85 must also be observed, particularly its requirements to communicate terms and provide information. Handing over a lengthy contract the day before signing may not amount to adequate communication of its terms.

The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese law of general application. Whether compliance is required depends on association membership or commitments undertaken. The information pack should therefore be legally reviewed against the applicable rules, rather than copied from foreign documents.

2. Gathering the information that matters to a candidate’s decision

Organise the pack around the questions an independent investor needs answered. Distinguish between verified facts, proposed terms and matters still open to negotiation.

As good practice, include at least the following sections:

• Identity and experience: the company that will enter into the contract, the business’s track record, the team responsible for support, and the actual operating experience of company-owned or pilot outlets.
• Trade mark and usage rights: the owner, relevant registrations, the territory in which protection applies, and the legal basis on which the franchisor can authorise use. Distinguish between a trade mark application and a registered trade mark.
• Investment and charges: the initial franchise fee, fit-out works, equipment, stock, deposits, working capital, royalties and advertising contributions. Specify the VAT treatment and what each estimate excludes.
• Support and obligations: training, opening support, ongoing assistance, mandatory purchases, IT systems and the franchisee’s responsibilities.
• Key terms: contract duration, territory, any exclusivity, renewal, transfer, termination and restrictions after the contract ends.

Provide the draft contract and any annexes needed to understand the proposal. You do not need to disclose all confidential know-how in advance, but candidates must understand the operating obligations that will affect the outlet’s costs and autonomy.

3. Presenting results without promising profitability

The financial presentation is usually the most sensitive area. A profitable company-owned outlet does not, on its own, demonstrate that a franchisee will achieve the same results.

Start by identifying the source of the data: the outlet concerned, the period covered, how established the operation is and any relevant circumstances. Explain whether the outlet benefits from a favourable longstanding rent, an exceptional location, unpaid work by the founder or shared services not reflected in its costs.

Then prepare a financial statement adjusted to reflect the future franchised outlet. Add the charges set out in the proposal, including royalties, advertising, systems and remuneration for whoever manages the operation. Separate the initial investment, operating costs and cash flow requirements.

Clearly label projections as projections. Set out the assumptions for sales, margins, staffing and premises costs, alongside less favourable scenarios. Do not turn the pilot outlet’s best month into an annual forecast without explaining seasonality and limitations.

If there is not yet enough historical data, say so explicitly. A general disclaimer that results are not guaranteed does not remedy unsupported figures. Keep the calculations and documents supporting each sales claim, and ensure that the franchise recruitment team uses the same information.

4. Creating a process for providing and updating information

The quality of the pack also depends on how it is provided. Establish a simple internal sequence:

1. Assess the candidate’s suitability and explain the evaluation stages.
2. Enter into an appropriately scoped confidentiality agreement where necessary.
3. Provide the information pack, draft contract and annexes, identifying the version and date.
4. Allow adequate time for independent review and answer significant questions in writing.
5. Update the information to reflect any material changes before signing, and give the candidate a genuine opportunity to reconsider.

Do not present an internal deadline as though it were a mandatory statutory period in Portugal. As good practice, provide the relevant information before requesting payments or binding commitments.

Keep evidence of delivery and of the answers provided, while complying with data protection rules. An acknowledgement of receipt proves that the information was made available; it does not replace truthful, understandable information or remove the candidate’s rights.

In practice: before recruiting, cross-check your sales presentation, projections and contract. If they describe different investment requirements, support arrangements or risks, resolve those discrepancies before proceeding.