Franchises with multiple owners: clarify responsibilities before launch

When you expand your existing business into a franchise network, two or more co-owners may want to run a unit together. This can bring broader expertise and greater capacity, but it can also create uncertainty about who makes decisions and who actually does the work. Establish a clear framework for joint ownership before offering a franchise to a team of co-owners.

Distinguish between owners, the contracting party and the operations manager

Franchising is based on cooperation between independent businesses. If the franchisee is a Swedish limited company (aktiebolag), it is normally the company that enters into the franchise agreement. The co-owners own the company, but ownership does not automatically make them personally liable for all its obligations.

You therefore need to distinguish between three roles:

• The contracting party: the business entitled to use the concept and required to fulfil the franchise agreement.
• The owners: the individuals or companies that hold the shares and make ownership decisions.
• The operations manager: the person who coordinates the unit’s day-to-day work and communication with you.

One person may fulfil several roles, but each role should still be described separately. For example, a contact person responsible for operations does not automatically have authority to sign binding agreements on the company’s behalf. Check authorised signatory arrangements and any powers of attorney before legally binding actions are taken.

Draw up a simple responsibility map with the candidates. Set out who receives operational information, who can approve financial commitments and which matters must be considered by the company’s board or shareholders. The map should support cooperation, not replace the company’s formal decision-making procedures.

Test how the co-owners plan to work together

Do not assess each co-owner’s experience in isolation. Also explore how they intend to work together. A team in which both people claim responsibility for everything may, in practice, leave important tasks without anyone accountable for them.

Ask the co-owners to describe a typical working week. Who handles sales, staffing, administration and communication with the franchisor? How much will each person work? Is anyone primarily providing capital rather than taking part in day-to-day operations?

Then test their proposed working arrangements against specific situations:

• A major investment is needed, but only one co-owner wants to proceed.
• An owner wants to reduce their workload without selling their shares.
• The operations manager steps down, while the remaining owners want to continue.
• The owners give conflicting instructions about who may commission support from the franchisor.

The aim is not for you to resolve their internal relationship. You do, however, need to understand whether the unit can make decisions and meet its commitments even when the owners disagree.

Document the operational capacity you expect. If the concept requires a person in charge who is actively present in the business, make that explicit rather than burying it in a general expectation that owners should be committed.

Keep the franchise agreement and shareholders’ agreement separate

The franchise agreement governs the relationship between the franchisor and the franchisee company. A shareholders’ agreement, by contrast, governs arrangements between the company’s owners. The documents serve different purposes and should be reviewed together to ensure they are not based on incompatible assumptions.

For example, the co-owners may need their shareholders’ agreement to address work commitments, funding, decision-making, disagreements and share sales. This is their agreement. Encourage them to seek independent legal advice rather than presenting a standard document as a ready-made solution to every ownership issue.

For your part, the franchise agreement needs to clarify any operational management requirements and how changes in ownership will be handled. Distinguish between transferring the franchise agreement to another business and a change in ownership of the shares in the existing franchisee company. When shares are sold, the contracting party may remain the same even though control of the business changes.

Have a lawyer draft any consent requirements. Specify which changes are covered, what supporting information is needed and how the approval process will work. Avoid arrangements in which even insignificant changes create uncertainty about the right to continue operating.

Agree the framework before signing

Sweden does not have comprehensive franchise legislation, but the Act (2006:484) on Franchisors’ Duty to Provide Information applies before a franchise agreement is entered into. The franchisor must provide clear, understandable written information in good time about the implications of the agreement and any other matters necessary in the circumstances.

Requirements concerning owner involvement, operational management and approval of ownership changes should therefore be explained clearly before signing. The information must reach the prospective contracting party through its authorised representatives. Consider also holding a joint briefing for the co-owners to bring their expectations into the open. This briefing does not replace the written information.

General contract law also applies, while the Swedish Companies Act governs matters including the company’s organisation and representatives. The franchise agreement does not override these rules. If you are considering personal undertakings from the owners, these need to be drafted and explained separately; do not assume that signing on behalf of the company also binds the individual personally.

Practical takeaway: Do not require every co-owner to do everything. Instead, ensure that the company has clear decision-making authority, a workable division of responsibilities and a predictable process for ownership changes. This provides a more stable foundation for the whole franchise network.