Franchise Agreements in Germany

Local or foreign businessmen who want to open a business in Germany can start a franchise agreement, which is a type of business that can yield positive financial results. The main advantage of a franchise agreement is related to the fact that the investor is not required to invest in order to promote the products or services supplied on the market because the business refers only to companies that are well known on a national or international level. At the same time, the businessmen will only have to apply the business strategy of the company they will further represent. However, there are some stipulations that should be respected by both parties entering a franchise agreement; our team of German lawyers can provide an extensive presentation on this type of agreement. 

Franchising industry in Germany 

It is important to know that the franchising industry became popular in Germany in the last decade; most of the franchising businesses are set up in fields such as: 

• trade;

• retail;

• services;

• accommodation; 

• catering.

There is a growing trend for businessmen to invest in franchising companies with activities in the food industry, education, cosmetics, home decorations, internet, and telecommunication or car parts industry. 

A relevant aspect related to the development of this type of business is that more than 50% of the German franchisors have expanded their business activities in many countries of the European Union; our team of German lawyers can provide you with more details on the characteristics of this market. 

Legal framework for franchise businesses in Germany 

A franchising business can be incorporated under any legal entity available under German law, but the most popular type of company is the private limited company, subjected to the Limited Liability Company Act. 

In terms of the relationship established between the franchisor (the entity offering the right to further sell its business activity) and the franchisee, it is very important to know that, in accordance with the provisions of the franchise agreement, the franchisee can fall under the risk of being considered a type of employee of the franchisor. Still, a franchise business established as a company limited by shares will not run this risk, as the parties will be considered partners. 

The franchise agreement should provide clear stipulations on intellectual property protection, which will be carried out in accordance with the requirements of the franchisor. Still, the know-how of the business is not protected by any law and it should be stipulated in a confidentiality agreement that will have to be respected by the franchisee. 

 Persons who need more information on the franchise agreements in Germany can contact our law firm.