Franchise or licence: what to offer before expanding in Slovenia

A successful business can offer its know-how and brand to other entrepreneurs in several ways. Before your first expansion, answer a fundamental question: do you want to allow others to use a particular business asset, or build a franchise network in which partners operate your entire business concept? The distinction affects the agreement, your organisation and future partners’ expectations. Do not decide simply on the basis of which contractual label sounds easier.

1. First, define what the partner actually receives

A licence centres on permission to use a particular right or body of know-how. This might be a brand, a protected solution or agreed specialist knowledge. The parties define the scope of that permission: what the partner may use, for which purposes, in which territory and for how long. A licence may also include quality requirements, so their presence alone does not make the arrangement a franchise.

When joining a business-format franchise network, by contrast, a partner generally adopts a broader package: the brand identity, the approach to delivering services or making sales, operating procedures and agreed business rules. The partner remains an independent business owner, but uses the franchisor’s business concept and continues working with them after opening.

Draw up an inventory of your offer in three columns:

• Rights: which brands, materials and know-how the partner may use.
• Ways of working: which procedures they must adopt and which decisions they make independently.
• Ongoing support and cooperation: what you will provide after the initial transfer of know-how.

If the third column is empty and the second contains only a few restrictions on brand use, it makes sense to explore a licensing arrangement first. If you are offering a complete business operation under a shared identity, assess whether you are ready to build a franchise network. This is a business assessment, not a definitive legal classification of the agreement.

2. Check how much consistency you can genuinely deliver

Imagine an established business that runs educational workshops. It could allow another entrepreneur to use a particular programme while that entrepreneur develops their own offer, organises their work and trades under their own identity. Alternatively, the partner could join a franchise network, adopting the entire centre concept, its delivery methods and a shared market identity.

Similar know-how may be transferred in both cases, but expectations differ. A licensee should not automatically expect a complete framework for running the business. A franchise network member, meanwhile, needs to know which parts of the concept are ready to use and what they will need to arrange themselves.

Before choosing, ask:

• Can you clearly separate your core know-how from the founder’s personal abilities?
• Are you giving the partner a single solution or a complete way of generating revenue?
• Do you want to be involved in how they run the business day to day, or mainly to safeguard the authorised use of your rights?
• Do you have the people and resources to fulfil the commitments involved in your chosen arrangement?

A broader promise requires greater organisational capacity. Calling your offer a franchise does not make up for missing procedures, just as calling it a ‘licence’ does not remove obligations you actually take on.

3. In Slovenia, the substance of the agreement matters

Slovenia has no dedicated franchising act, and its Obligations Code does not specifically regulate franchise agreements as a distinct type of contract. A franchise agreement is an innominate contract: one that may combine elements of licensing, sales, distribution, leasing and other arrangements. Its assessment depends on the actual rights and obligations, not simply the title of the document.

The foundation is provided by the general rules of the Obligations Code, including the principle of good faith and fair dealing, and rules on fulfilling obligations and liability for breach. Freedom of contract is not unlimited: an agreement must not conflict with mandatory law or moral principles. The Obligations Code requires licence agreements to be in writing, so do not leave the grant of rights to verbal assurances.

Depending on the substance of the arrangement, other relevant legislation includes the Industrial Property Act, the Trade Secrets Act for protecting confidential know-how, and the Prevention of Restriction of Competition Act (ZPOmK-2) for restrictions on business activity, alongside European Union competition law where applicable. Calling an arrangement a licence is not a way to avoid competition rules.

There is also no specific statutory list of pre-contractual disclosures for franchises. This does not mean you can present a misleading business proposition to a prospective partner. Before signing, have a lawyer check that the agreement reflects the actual arrangement, and an accountant review the financial and tax treatment of the proposed payments.

4. Align your offer, agreement and delivery

Once you have chosen your approach, prepare a one-page description of the arrangement. Distinguish between what the partner receives, what they must do themselves and what your offer does not include. Compare this description with your sales presentation and draft agreement. Look particularly for promises such as ‘turnkey business’, ‘complete independence’ or ‘comprehensive system’, which can create false expectations without further explanation.

Next, assign someone in your business responsibility for each promised element and specify how it will be delivered. If you cannot do this, narrow the promise or postpone expansion. Also make clear to the partner that permission to use a successful concept is not a guarantee of their own business success.

Practical takeaway: first describe the substance of the arrangement, then choose its contractual form. Build a franchise network when you can not only grant rights, but also transfer and maintain a complete business concept over the long term.