Which company should sign franchise agreements when franchising a business in Spain?

Before offering your first franchise, settle a decision that will shape the entire relationship: which company will be the franchisor? It could be the company already operating the business, or a new company set up to develop the franchise network. This is not simply a matter of choosing a name for the contract: that entity must have the rights, resources and capacity to deliver on its promises.

1. Distinguish the franchise from the company granting it

A franchise is not a legal form and does not, in itself, create a new legal entity. It is a contractual relationship between independent businesses. Turning an existing business into a franchise therefore does not automatically require you to incorporate another company.

In Spain, the specific legal framework is set out in Article 62 of Law 7/1996 on Retail Trade and the provisions of Royal Decree 201/2010 that remain in force, which establish the basic conditions for franchising. General rules on contracts, companies and competition also apply, among others.

Royal Decree 201/2010 links franchising to a business previously developed with sufficient experience and success. It also provides for the use of shared branding, the transfer of know-how and ongoing support. A newly incorporated company should therefore not present itself as having spent years operating outlets belonging to another company.

The identity of the contracting company and the history of the business must be clearly distinguished. If the proven business belongs to another entity within the same group, you will need to document how the prospective franchisor obtains the rights and resources needed to pass on that business model.

2. Compare using the existing company with setting up a new one

Using the existing company can simplify the launch: it already has operational experience, staff and commercial relationships. However, it also brings the operation of company-owned outlets and the obligations towards franchisees together within a single entity.

Setting up a dedicated company can make it easier to manage franchising separately, but it adds administrative costs and requires you to organise the relationship between the two companies. The new entity does not automatically acquire the trade mark, know-how or access to the team simply because it shares shareholders or a director with the existing company.

Prepare a written comparison addressing these questions:

• Rights: which entity owns, or is entitled to license, the necessary assets?
• People: who employs the team that will fulfil the contractual commitments?
• Resources: which company will bear the costs and be liable for its obligations?
• Management: can the accounts and responsibilities for each activity be clearly separated?
• Continuity: what would happen if the relationship between the group companies changed?

Do not assume that setting up another company eliminates the risks. Legal separation must be supported by proper contracts, sufficient resources and consistent management. Review the decision with corporate legal and tax advisers before communicating it to prospective franchisees.

3. Document the relationships before offering contracts

If you choose to establish a new franchisor company, draw up a simple map showing the operating company, the rights holder, the entity providing services and the entity signing agreements with franchisees. These may all be the same entity, but any separation must be supported by documentation.

For example, if one company owns the trade mark and another grants the franchises, check that the latter has sufficient authority to allow franchisees to use it. If the operational team is employed by the original company, document the services to be provided between the two companies, their scope and how their continuity will be ensured.

It is not enough for the directors to explain that ‘everything belongs to the same group’. The franchisee will contract with a specific entity and must be able to identify who is accountable to them.

Prepare an internal file containing:

• The franchisor’s identity and corporate details.
• Evidence of the signing authority or powers of attorney of the person signing on its behalf.
• Contracts permitting the use and transfer of the necessary rights.
• Agreements securing access to the staff and resources promised.
• Evidence of the business’s track record, attributed to the relevant entity.

4. Keep identities, documentation and payments consistent

The commercial proposal, pre-contractual information, agreement and invoices must consistently identify the entities involved. If another company performs a particular role, explain it; do not switch between company names without justification.

Royal Decree 201/2010 requires written, truthful and non-misleading pre-contractual information to be provided at least twenty working days before the contract or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor. This information must include the identity of the franchisor company.

Do not confuse Spain’s Commercial Register (Registro Mercantil) with the former Franchisors Register (Registro de Franquiciadores). The national obligation to notify the latter was abolished; historical references to it should not be used as a current compliance checklist.

Practical conclusion: before recruiting prospective franchisees, establish who will sign, what rights they hold and what resources they have available. A simple, documented structure is preferable to several companies whose responsibilities no one can explain.