Buying a franchise: who should sign the contract?

Before buying a franchise in Spain, decide who will actually be bound by the contract: you as a sole trader or a company. This is not a formality you can sort out later without consequences. Within a franchise network, each business remains legally and financially independent. The identity of the franchisee therefore needs to fit with the financing, lease, licences and business structure you will use to operate.

1. Distinguish the buyer from the person signing

A franchise is not a legal business structure, nor does it create a business entity in its own right. It is a contractual relationship between independent businesses. You can join as a sole trader or through a company, but you should compare both options with legal and tax advice before taking on any obligations.

If you enter into the agreement as a sole trader, you personally acquire the rights and take on the business’s debts. As a general rule, your personal assets are at risk, subject to any specific rules and protections that may apply.

If a limited liability company enters into the agreement, the company is the franchisee. Shareholders’ limited liability does not remove any personal guarantees they may give or any liabilities that the law may impose on the company’s directors.

Signing as a representative is not the same as signing in your own name. The contract should clearly identify:

• The name and details of the franchisee company.
• The person representing it.
• The position or authority that entitles them to act.
• Any obligations that person also takes on personally.

Adding a company stamp is not enough. Pay particular attention to the opening definitions and the signature section: the same person may appear as a representative, a shareholder with contractual obligations and a guarantor.

2. Establish the buyer’s identity before signing a reservation agreement

A sensitive situation arises when a prospective franchisee signs a reservation agreement personally because they have not yet formed the company. Setting up a company later does not automatically transfer those commitments to it.

If you plan to operate through a company, agree in writing how it will become a party to the agreement. It is advisable to identify the future entity as far as possible, set a deadline for its formation and specify what will happen to any money paid if the transaction ultimately does not go ahead.

Also clarify whether the franchisor agrees to replace you with the company as the contracting party, and whether that replacement expressly releases you from your previous obligations. Allowing a company to run the business does not necessarily release the original signatory.

In Spain, Article 62 of Law 7/1996 on Retail Trade and Royal Decree 201/2010 regulate aspects of franchising. Pre-contractual information must be provided in writing at least twenty working days before any franchise contract or preliminary agreement is signed, or any payment is made to the franchisor.

Calling a document a ‘reservation agreement’ does not bypass these obligations if it creates a franchise commitment. Do not hand over money on the assumption that you are not yet taking any risk simply because the final contract has not been signed.

3. If the company is being formed, check who is liable

A company in the process of being formed should not be treated as though it were already fully registered. Spain’s Companies Act (Ley de Sociedades de Capital) sets out specific rules for acts and contracts entered into in its name before registration.

Depending on the circumstances, those acting on its behalf may be personally liable. There are exceptions and rules governing the company’s subsequent adoption of those acts, but you should not assume that registration will automatically cover every agreement signed beforehand.

Before signing at this stage, ask a lawyer to check:

• What stage the company formation process has reached.
• Who has authority to enter into contracts, and the scope of that authority.
• Whether the agreement should be conditional on registration and subsequent adoption by the company.
• How that adoption will be documented and what liability the signatories will retain.

If several shareholders are involved, also agree who will negotiate and who will be able to bind the company. A private agreement between you does not replace the authority required to represent the company in dealings with the franchisor.

4. Align the contract with the business that will operate the franchise

Check that the franchisee entity aligns with the entity that will lease the premises, employ staff, invoice customers and apply for the relevant permits. Different structures may be possible, but they should be justified and approved where necessary, rather than arising through oversight.

Your review should also cover clauses dealing with changes in shareholders, directors or control. Even if the same company remains the contracting party, certain changes may require notification or approval under the contract. This matters if you expect to bring in investors after opening.

Prepare a single summary sheet setting out the contracting party, its representative, their authority and any outstanding documents. Check it against each document before signing.

Practical takeaway: first decide who will buy and operate the franchise. Then check that reservation agreements, the franchise contract and related commitments reflect that decision, leaving no hidden personal obligations or changes of contracting party still awaiting approval.