In franchising, a company (the franchisor) grants an entrepreneur (the franchisee) the right to use a certain standardized business concept. This typically includes the use of a brand name, certain business processes, and often a detailed business model. In most cases, there is an entire handbook in which the terms and conditions are written down. Consider, for example, quality requirements, communications, advertising campaigns and uniform store layout. Basically, franchising is a licensing agreement with strict conditions and requirements.

There is often a central purchasing organization from which franchisees can benefit. Unlike a pure distribution agreement, where a reseller purchases products and then resells them independently, franchising is about operating a business under a common brand and according to a standardized concept. And unlike an agency agreement, the franchisee operates the business in his own name and for his own account and risk, but within the framework of the franchise concept.

Legally, franchising presents a number of specific challenges and obligations. Franchise agreements must be carefully drafted to establish the rights and obligations of both parties, including the use of intellectual property, the provision of know-how, and compliance with the franchise manual. In addition, aspects such as territorial exclusivity and non-compete clauses come into play.

At EU level and also e.g. in the UK, there are rules to be observed in relation to competition law. In the Netherlands, the franchise industry is subject to specific regulations, such as the Dutch Franchise Act, aimed at creating a balanced relationship between franchisors and franchisees.

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