Franchise Agreement
A franchise agreement is an unnamed contract (a contract not listed in or provided a name by a country’s positive law) and a complex contract of an autonomous contract law (developed in practice, rather than by the legislator).
The complexity of this type of agreement stems from the fact that it combines different legal mechanisms and types of contracts (distribution, licence, know-how, mandate, agency, sales, commission, lease, rent and other contracts), as well as rules from different areas of law, including not only contract law, but also status-related commercial law, which governs the status of companies. One defining characteristic of a franchise contract is that it primarily creates the effect of status grouping using the form of a contract under the law of obligations, which creates a simulacrum of a legal affiliation between the parties. While different parts of a franchise system are economically related, they remain legally independent from one another.
Franchise is governed by a franchise agreement and constitutes a set of industrial and intellectual property rights, busines methods and principles, technical knowledge and skills (know-how), business name, brand, patents, samples, models and trademarks which the franchisor developed through practice and under which it operates (goodwill).
Here it would be opportune to provide the definition of franchise agreement that has been proposed in the draft for the future Serbian Civil Code. It reads as follows: “Under a franchise agreement, one party – the franchisor – grants exclusive rights to sell goods and provide services to another party – the franchisee – authorising the latter to operate under its proprietary (business) name, to use its licences (trademarks and brands) and other distinctive signs, to use its technical and commercial operating methods, knowledge and experience (know-how) and marketing, while providing technical services and assistance in the franchisee’s business training and retaining a perpetual right to instruct and supervise the franchisee, and the other party/franchisee pays the franchisor an appropriate fee in exchange for the rights granted to it.”
Please note that the draft Serbian Civil Code is still being discussed and has not yet taken effect.
Exactly because the Franchise Agreement remains an unnamed contract in Serbian law, it is paramount that both parties – the franchisor and the franchisee – define their operations through a professional, systematised and competent Franchise Agreement. The point at which a franchise business formally begins to exist, i.e. the time of signing of a Franchise Agreement, is one of the most stressful moments, as it lays the foundation for the two parties’ future business relations over a period of minimum 3 years. Since the Agreement seeks to strike a balance between the rights and responsibilities of both parties in a franchise business, it must be drawn up by a professional legal advisor specialising in franchises.
The Chamber of Commerce and Industry of Serbia, with its expert team and many years of experience, can give you the peace of mind and guarantee you will have an appropriate Franchise Agreement that will ensure the success of your business concept.
We also advise prospective franchisees to verify their Agreement before finally and formally joining a franchise network by signing it.
EUROPEAN CODE OF ETHICS FOR FRANCHISING
As the Republic of Serbia is not the only country where franchising is not governed by a separate law, many countries in which franchising is a highly developed business concept apply the European Code of Ethics for Franchising, developed by the EU as a practical ensemble of essential provisions for the governance of relations between franchisors and franchisees in Europe.
The Chamber of Commerce and Industry of Serbia focuses on efforts in affirming and promoting franchises on the use of the ECE in Serbia, to minimise the risk of failure, litigation and technically deficient Franchise Agreements.
The current European Code of Ethics for Franchising is the latest version of the Code which the European Franchising Federation (EFF) first developed in 1972. Each national organisation or federation within the EFF took part in developing the Code, thus ensuring its promotion, interpretation and adaptation in its country. Any adaptations proposed by member organisations may be appended to the main Code, without modifying it, and must be approved by the EFF managing body before they are implemented.
The ECE is available at THE EUROPEAN CODE OF ETHICS FOR FRANCHISING
