Pre-contract disclosure before your first franchise agreement

When you develop your existing business into a franchise network, prospective franchisees need to understand the offer before signing the agreement. A sales meeting and a contract template are not enough. This practical guide explains how to compile, check and provide pre-contract information before your first franchise agreement in Sweden — without confusing verified results, future plans and binding commitments.

1. Start with Sweden’s disclosure legislation

Sweden has a specific Act (2006:484) on Franchisors’ Duty to Disclose Information. It is therefore incorrect to claim that Sweden has no franchise-specific legislation. The Act governs pre-contract disclosure, rather than every aspect of the relationship. Other legislation, including the Swedish Contracts Act, competition rules and the Trade Marks Act, may also be relevant.

Well before entering into a franchise agreement, the franchisor must provide clear, comprehensible written information about the implications of the agreement and any other matters required by the circumstances. The disclosure items listed in the Act are therefore a minimum, not a guarantee that every offer has been adequately explained.

The information must cover at least:

• The business the franchisee will operate.
• Other franchisees within the same franchise system and the scale of their operations.
• Payments to the franchisor and other financial terms.
• Intellectual property rights to be licensed.
• Goods or services the franchisee must purchase or hire.
• Non-compete restrictions during the agreement or after it ends.
• The agreement’s duration, terms for amendment, renewal and termination, and the financial consequences of termination.
• How disputes will be resolved and the franchisee’s liability for costs.

The Act does not specify a fixed number of days for well before. Allow meaningful time for reading, questions and independent advice, taking the scope of the agreement into account. Failure to comply may result in an order to provide information, backed by a conditional financial penalty. Ask a lawyer to review both the content and the process.

2. Build an information pack that reflects reality

Start with a separate disclosure document, giving each statutory item its own heading. Refer to clearly identified schedules to the agreement where necessary, but do not let important limitations get lost in cross-references or technical wording.

Transparency is particularly important for a business that does not yet have any external franchisees. State clearly that there are none. Describe your own outlets as company-owned and identify any operation that has served as a pilot. A company-owned pilot is not the same as an established outlet run by an independent franchisee.

Distinguish between three types of information:

• Verified facts: for example, historical sales results from a specified type of outlet over a stated period.
• Assumptions: for example, estimated staffing levels, premises rent or sales growth.
• Commitments: for example, the training and ongoing support that the franchisor actually undertakes to provide.

If you present a financial projection, explain which costs it includes and which it excludes. The founder’s unpaid work, favourable premises costs or centrally funded administration could otherwise give a misleading impression of the costs a new outlet can sustain. Show how the proposed franchise fees affect the figures, and avoid presenting a single pilot’s results as a promise of future profitability.

3. Check fees, rights and consistency across documents

Cross-check the disclosure document against the draft agreement, financial projection and relevant sections of the operations manual. Each obligation should be described consistently throughout.

For every fee, the prospective franchisee should be able to understand how it is calculated, when it is payable, what it covers and how it may change. Also describe mandatory purchases and costs for items such as systems, equipment or marketing. Distinguish between payments to you and costs payable to external suppliers.

Be equally specific about the trade mark. State which right the prospective franchisee will be allowed to use, who owns it and any restrictions. Describe a pending trade mark application as an application, not a completed registration. Check that your company is genuinely entitled to license the rights on which the offer depends.

Also explain the consequences of the relationship ending. What happens to signage, stock, system access and any continuing payment obligations? Set out what the agreement says without promising that every clause is automatically legally valid.

Finally, ask someone who did not write the material to read it. If the reader cannot explain their main costs and risks in their own words, the document needs to be clearer.

4. Record delivery and manage changes

Appoint someone to take responsibility for the information pack, and give each version a date and version number. Keep an exact copy of the material each prospective franchisee receives, including schedules and the assumptions underpinning financial projections. Record when and how it was delivered.

Consider asking the prospective franchisee to acknowledge receipt. This confirms that the material was received, but does not in itself prove that the content was sufficient or provided well before signing.

Introduce a simple process for questions: collect them in writing, answer them clearly and update the documentation whenever an answer affects the offer. If key terms change shortly before signing, the prospective franchisee should receive updated material and enough time to assess the changes. Discuss with your lawyer whether signing should be postponed.

Practical takeaway: Do not leave pre-contract disclosure until the final step before signing. Develop it alongside the agreement, check it against the reality of the business and give prospective franchisees room to make an independent decision. This builds trust in your future franchise network.