Checking a Franchisor: Who Signs the Agreement and Receives Your Money?

Several companies may operate behind a familiar franchise name: one handles negotiations, another signs the agreement and a third issues the invoice. This is not inherently improper, but prospective franchisees need to understand who is legally accountable to them. Trust matters in franchising, but before making a payment, you should back it up by checking the contracting party, the signatory’s authority and where the money is going.

1. Establish exactly who you are doing business with

Ask for a draft agreement with the party’s details completed, rather than an anonymous template. For a company, you need its full legal name, taxpayer identification number (INN), primary state registration number (OGRN), address and details of its head; for an individual entrepreneur, you need their full name, INN and individual entrepreneur registration number (OGRNIP). Compare these with the commercial proposal and invoice. A matching brand name is not enough: different legal entities may use similar names.

In Russia, commercial concession arrangements are specifically governed by Chapter 54 of the Civil Code of the Russian Federation. Under Article 1027(3), only commercial organisations and registered individual entrepreneurs may be parties to such an agreement. If you are offered a commercial concession agreement with a private individual who is not registered as an entrepreneur, or with a non-profit organisation, the legal structure needs to be reconsidered. A verbal explanation from a sales manager is not enough.

Calling a document a ‘franchise agreement’ does not, in itself, determine which rules apply: what matters is the substance of the obligations. The grant of the right to use a bundle of exclusive intellectual property rights under a commercial concession agreement must be registered with Rospatent, Russia’s intellectual property authority. Checking the legal entity does not replace checking those rights, but it establishes who should provide the documents and who will be obliged to perform the agreement.

If several companies are involved, draw up a simple table showing:

• who enters into the main agreement;
• who supplies the documents and provides ongoing support;
• who issues invoices and receives each payment;
• who is liable if a particular obligation is not fulfilled.

Any blank entry is a reason to postpone payment until you receive a written explanation.

2. Check the legal entity against official records

Obtain a recent extract from the Unified State Register of Legal Entities (EGRUL) or the Unified State Register of Individual Entrepreneurs (EGRIP) through the Federal Tax Service’s online service. Check the contracting party’s status, registration date, head and any information about reorganisation or liquidation. A flag indicating that registered information is unreliable requires a separate explanation and documents confirming that the issue has been resolved.

Assess the company’s age alongside the brand’s history. A recently incorporated entity may legitimately develop a long-established network, but another company’s experience does not automatically become its own. Ask why this particular organisation is entering into the agreement, which staff and resources support its operations, and what obligations it is taking on.

Then consult several sources:

• The commercial court case database: check the parties involved, the nature of the claims, court decisions and the current stage of proceedings.
• Fedresurs and bankruptcy records: look for notices of significant events and proceedings that could affect performance of the agreement.
• The Federal Bailiff Service’s enforcement proceedings database: check for enforcement action and what it concerns.
• The Federal Tax Service’s State Information Resource for Accounting Statements: review the organisation’s available financial statements for several reporting periods.

Do not draw conclusions from a single claim or a low level of registered share capital. A combination of warning signs matters more: repeated demands for refunds, unsatisfied court judgments and a lack of identifiable resources to support franchisees. Equally, an absence of entries in public databases does not guarantee reliability: records may appear with a delay, and some information may be unavailable.

3. Make sure the signatory has authority to act

If the organisation’s head signs the agreement, compare their details with the EGRUL extract and request documents confirming their appointment. Review the provisions of the company’s charter governing the authority of its executive body. If several people are authorised to act on the company’s behalf, establish whether they must act jointly or may act independently.

If a representative signs, ask for their power of attorney. Check its date of issue, validity period, details of the principal and representative, and the scope of the authority granted. A power of attorney without a date of issue is void. Authority to conduct negotiations should not automatically be treated as authority to enter into an agreement or change its financial terms.

Check separately whether the power of attorney covers signing appendices, supplementary agreements and acceptance certificates. Where necessary, verify its validity through available official services and confirm the representative’s authority directly with the principal, using independently sourced contact details.

A major transaction or an interested-party transaction may require corporate approval, depending on the circumstances and applicable rules. Ask a lawyer to assess whether approval is needed. A generic letter stating that ‘all necessary authority is in place’ does not replace a resolution of the competent corporate body where the law requires one.

4. Link the payment to your obligations under the agreement

Before transferring money, compare the recipient named in the bank details with the party named in the agreement. If another company is receiving the money, ask for a written basis for this, such as a contractual provision or a properly documented instruction from the creditor. The documents must make clear that the payment will count towards discharging your particular obligation.

Be especially cautious if asked to transfer a franchise fee to a manager’s personal bank card. A verbal promise that ‘the accounts team will sort out the paperwork later’ establishes neither the recipient’s authority nor the purpose of the payment. For an individual entrepreneur, assess the bank details in light of their legal status, rather than treating the presence of a personal name alone as a warning sign.

Keep register extracts, powers of attorney, explanations of the transaction structure and confirmations of bank details alongside the signed agreement. Immediately before paying, recheck the company’s status and who is authorised to head it. Confirm any unexpected change of bank account through a previously verified communication channel.

Practical takeaway: it is safer to pay only once three points have been established in writing: who is obliged to perform the agreement, who is authorised to sign it, and why a transfer to the chosen recipient discharges your payment obligation.