Pre-contract franchise disclosure: complying with Swedish law

When expanding your existing business into a franchise network in Sweden, a persuasive presentation and a ready-to-sign agreement are not enough. Prospective franchisees must receive information they can understand and use to make an informed decision before entering into the agreement. A well-designed pre-contract disclosure process helps you comply with the law and reduces the risk of starting the relationship with mismatched expectations.

What does Swedish law require before an agreement is signed?

Sweden has no comprehensive legislation governing every aspect of franchising. It does, however, have the Act (2006:484) on Franchisors’ Duty to Disclose Information. This requires the franchisor, well before a franchise agreement is entered into, to provide written information about what the agreement entails and any other matters that need to be disclosed in the circumstances. The information must be clear and understandable.

It is therefore wrong to assume that Sweden has no franchise-specific regulation. The disclosure obligation applies alongside, for example, the Swedish Contracts Act, the Competition Act and intellectual property rules. Meeting the disclosure requirement does not automatically mean that every contractual term is legally acceptable.

The Act does not specify a fixed number of days for what counts as ‘well before’. You should therefore plan the process around the scope and complexity of the offer. Candidates need a genuine opportunity to read the information, ask questions and seek advice from their own advisers before making a binding decision.

Treat pre-contract information as a basis for an informed decision, not as sales material. A meeting or verbal explanation does not replace the requirement to provide written information.

Set out the statutory minimum requirements clearly

The Act specifies eight areas that the information must cover as a minimum. Use them as a checklist when preparing your disclosure documents:

• The business: Describe the franchise business that the franchisee will operate. Explain what running it actually involves day to day.
• Other franchisees: Provide details of other franchisees with whom you have entered into agreements within the same franchise system, and the scale of their operations.
• Financial terms: Set out the payments due to the franchisor and the other financial terms of the business.
• Intellectual property rights: Specify which rights are being granted, such as the right to use particular trade marks.
• Mandatory purchases: Describe which goods or services the franchisee must buy or hire.
• Non-compete restrictions: Set out the restrictions that will apply during or after the agreement’s term.
• Duration and changes to the agreement: Describe the term of the agreement, the conditions for amendment, renewal and termination, and the financial consequences of termination.
• Disputes: Explain how disputes will be resolved and who will be responsible for legal costs.

These points are a minimum, not an exhaustive list. If another matter is important to understanding the offer, it may also need to be explained.

Clarity is particularly important for a business that does not yet have any franchisees. If the candidate will be your first franchisee, say so. Distinguish between company-owned outlets and businesses run by independent franchisees. Company-owned outlets can provide relevant experience, but should not be presented as existing members of the franchise network operating on the same terms.

Make the information easy to understand and check

One practical approach is to prepare a separate, dated disclosure document with clear references to the current draft agreement and relevant appendices. This is a suggested working method, not a statutory requirement to use a particular form.

First explain what a term means in practice, then refer to the relevant contractual provision. For example, if the candidate must hire equipment from a designated supplier, make clear that this is mandatory and explain the financial commitments involved. Do not hide the obligation behind a general statement about following the franchise concept.

Also distinguish between matters that have been decided and those still under discussion. If a significant cost has not yet been fixed, say so explicitly and explain how it will be determined. Consult a legal adviser to assess whether further information is needed before the agreement can be entered into.

Consider asking someone who was not involved in developing the concept to read the document. Ask them to explain the payments, restrictions and risks associated with the offer. Any misunderstandings will show where the wording needs to be clearer.

Record delivery and manage changes

Appoint someone to coordinate the disclosure process. Even in a small business, it should be clear who checks the content, sends the material and handles follow-up questions.

Use a straightforward process:

1. Check that the information reflects the current offer.
2. Send dated documents and keep a record of the exact version the candidate received.
3. Ask for confirmation of receipt and offer to go through the information.
4. Answer important questions in writing and retain the answers.
5. Before signing, check whether any terms have changed.

An acknowledgement of receipt records that the documents were delivered, but it is no substitute for understandable content or sufficient time to consider it. If material terms change late in the process, provide updated information and assess whether signing should be postponed. Do not let a planned opening date squeeze out the time needed for review.

Practical takeaway: Make pre-contract disclosure a distinct step before entering into the agreement. Cover the statutory minimum requirements, explain the terms in plain language and record what the candidate received and when.