Buying a franchise in Slovenia: should you sign as a sole trader or a limited company?

When buying a franchise, your choice of brand is not the only thing that matters: you also need to decide who will sign the contract. Will you operate as a sole trader (s.p.) or through a limited liability company (d.o.o.)? In Slovenia, this decision affects liability, financing and the paperwork you need to arrange before opening. You are joining the franchise network as an independent business operator, so do not choose a legal structure solely on the franchisor’s recommendation or because it is quick to register.

1. First, decide who will be the contracting party

Tell the franchisor during negotiations which individual or company is intended to become the franchisee. The draft agreement should include the correct registered business name, registered address and identification details. If the company has not yet been incorporated, draw a clear distinction between discussing a future business relationship and taking on binding obligations.

An s.p. is not a separate legal entity from the individual running the business. A sole trader is liable for business obligations with all their assets, including personal assets. A d.o.o., by contrast, is a legal entity liable for its obligations with its own assets; its shareholders are generally not personally liable. There are statutory exceptions, and personal liability can also arise from obligations undertaken separately.

The designation ‘d.o.o.’ is therefore not, in itself, complete protection. Check whether you are signing solely as the company’s representative or also in a personal capacity. Pay particular attention to signature blocks, appendices and declarations, not just the first page of the agreement.

Before deciding, list all the arrangements you expect to enter into: the franchise agreement, lease, financing, equipment supply and employment contracts. Identify the intended signatory for each. Resolve any inconsistencies before incurring costs.

2. Compare legal structures using your own business plan

Your choice between an s.p. and a d.o.o. should reflect how the business will operate, rather than a general belief that one option is always cheaper. A franchise with employees, a long-term lease and a substantial initial investment raises different questions from a small service business you run on your own.

Give your accountant the same business plan for both options. Ask for a comparison that takes account of:

• projected revenue and actual business expenses;
• your social insurance status and compulsory contributions;
• how you will take money out of the business for personal use;
• accounting and administrative obligations;
• planned recruitment and the possible involvement of a business partner.

With a d.o.o., the company’s money is not your personal money. Payments to you must have an appropriate legal and accounting basis. An s.p. also requires proper records and clear tracking of business obligations.

The tax comparison should be based on current rules and your circumstances. Do not automatically associate an s.p. with a particular method of calculating taxable income. Nor should you assume that choosing a legal structure also determines whether you must register for VAT.

Ask for a written comparison of the assumptions, not just the final figures. This will help you understand whether the recommendation still holds if turnover, staffing levels or the amount you need to take out of the business changes.

3. Coordinate business formation, financing and the first invoices

A common practical problem arises when a prospective owner starts signing documents and paying expenses before incorporating the company. Do not assume that contracts and invoices issued to you personally will automatically become obligations or expenses of the new d.o.o.

Agree the sequence of steps with the franchisor: approval of your application, registration of the business, arrangement of financing and signature of the final agreement. If the franchisor wants a binding document earlier, have a lawyer check who is taking on the obligations and how any subsequent transfer will be handled.

Tell the bank in good time who the borrower will be, too. A business plan for a future company and a loan application made by a different individual or entity will not necessarily be assessed in the same way. Align the financing arrangements with the contracting party that will generate revenue and meet the franchise obligations.

For each start-up expense, record who placed the order, who paid and to whom the invoice was issued. If you have already paid an expense personally, give your accountant the supporting documents; do not assume you can transfer it to the company without meeting further requirements. The same applies to equipment bought before incorporation.

4. Check Slovenian rules and the scope for later changes

Slovenia has no specific franchise law, compulsory franchise register or specifically prescribed franchise disclosure document. A franchise agreement is an ‘innominate’ contract: it is not a separately defined contract type under the law. The general rules of the Slovenian Obligations Code (OZ), including the principle of good faith and fair dealing, are relevant to negotiations and contractual obligations.

The Slovenian Companies Act (ZGD-1) governs the legal status, formation and liability of sole traders and companies. You must also comply with tax legislation, social insurance rules and the requirements for your particular business activity. Registering a business does not, in itself, replace any necessary permits.

Before signing, also ask what happens if you later want to change the business structure or bring in a shareholder. Check the provisions on transferring the agreement and changes of ownership. Do not assume you can simply replace the contracting party; the consequences depend on how the change is made, the law and the agreement.

Practical conclusion: first choose the individual or entity that will operate the business, then align the contract, financing and invoices. Have an accountant assess the financial implications of your choice and a lawyer review liability and ensure the documents are signed correctly.