Franchise Law in Sweden

A franchise contract is an agreement where an enterprise grants a party the right, in exchange for compensation, to utilize its established business model for marketing and selling products or services. The contract includes provisions on how to use the trademarks and proprietary rights owned by the enterprise, beside the requirements for the franchisee to adhere to operational standards and undergo regular oversight to maintain compliance with the terms of the agreement.

Franchise law in Sweden encompasses the legal aspects of franchising within business operations. As the number of franchise companies are rising across various chains, franchise owners must steer complex business law matters regularly as not complying with T&C can impose hefty fines from the mother company.

Are you also thinking about franchising? 

The process of franchising in Sweden, there are various aspects you need to ponder. Typically, an initial capital is required, and if you lack personal investment, one may need to request funding from external sources, such as from a bank. It’s logical to steer clear of guaranteeing the startup’s debts if possible. If unavoidable, ensure that your commitment is clearly defined and limited.

Any company or individual registered in or a citizen of an EU Common Market or European Economic Area (EEA) country can establish or acquire a business in Sweden without limitations. Similarly, entities or individuals from outside the EU Common Market or EEA can do so, but a Swedish company owned by them must appoint a board member domiciled within the EU or EEA

The information stipulated to franchisees must be comprehensive, transparent, and plausible. It should include:

•       A detailed explanation of the franchise business model to be operated by the franchisee.
•       Information regarding other franchisees within the franchise chain and the scale of their operations.
•       Details about the financial obligations, including payments to the franchisor and other financial terms outlined in the franchise agreement.
•       Explanation of the intellectual property rights and proprietary information licensed to the franchisee.
•       Description of the products and services that the franchisee is required to purchase or lease.
•       Disclosure of any non-competition clauses applicable during or after the franchise agreement’s term.
•       Terms of the franchise agreement, including provisions for amendments, extensions, and termination, along with the associated financial implications.
•       Overview of the dispute resolution mechanisms outlined in the franchise agreement, including the allocation of costs for dispute resolution between the parties.

Additional vital considerations include:

•       Are you ready to offer the transparency and relinquish control necessary for franchisees?
•       How do you view the individuals driving the franchise concept?
•       comprehensive research the franchise concept you’re contemplating.
•       Seek insights from multiple independent sources, not solely the franchisor.
•       Rapport with other franchisees in different locations for valuable insights.

Utilize resources such as the Swedish Franchise Association’s checklists and guidance for prospective franchisees.

Franchise law in Sweden– avoiding the pitfalls

Often is the case that both franchisors and franchisees must conscientiously assess the legal aspects of franchising. Numerous potential pitfalls exist for both parties, necessitating proactive measures from the outset.

Considerations for those thinking of becoming a franchisee

As a franchisee, you may have limited influence on the franchise agreement’s content, but it’s crucial to have a legal expert review it before signing. Before committing to becoming a franchisee, consider the following:

•       Is the timing and location suitable for this franchise concept?
•       Is the franchise concept and business idea viable?
•       Are the contractual terms reasonable and fair, and can you meet your obligations?
•       Does the franchisor offer adequate support and training, both initially and ongoing?
•       Are the conditions conducive to running a profitable business?
•       What should you consider as a franchisor in a franchise chain?
•       What should you consider as a franchisor in a franchise chain?

As a franchisor, considering a franchisee requires ensuring:

•       Clarity, legality, and correctness of the franchise agreement terms.
•       The franchisee can fulfill their obligations.
•       The ability of the franchisee to run the business profitably.

The prospective franchisee’s capacity to meet financial and legal obligations to the franchisor.

It’s crucial to ensure:

The prospective franchisee aligns with your concept’s ethos.

They’ll manage operations to your standards, delivering quality services/products and upholding core values.

They’ll effectively represent your brand locally, enhancing reputation and contributing positively to your business’s image.

When a franchisee fails to meet their financial and legal obligations, it can lead to detrimental consequences for both parties involved under Franchise law Sweden. For instance, financial mismanagement or failure to pay royalties can strain the franchisor-franchisee relationship and result in legal disputes. Moreover, if a franchisee engages in misconduct towards customers or employees, it not only tarnishes their own business reputation but also reflects poorly on the entire franchise chain. Such behavior undermines trust in the brand, potentially leading to customer dissatisfaction, negative publicity, and diminished brand loyalty. Therefore, franchisors must conduct thorough due diligence before selecting franchisees and enforce stringent guidelines to maintain the integrity of their brand.

Competition Law

There are no specific competition laws governing the offer and sale of franchises. Swedish competition laws align with those of the EU Common Market.

The standard term for a franchise law in Sweden is typically five years, with an option for the franchisee to renew for another five-year term. This timeframe is influenced by competition laws, which restrict contracts from imposing exclusive supplier agreements or product sales limitations beyond five years.

In agreements without a fixed end date, either party can terminate the agreement with reasonable notice. The length of this notice period typically increases with the duration of the agreement’s existence.

The franchisor cannot mandate or set the minimum price at which the franchisee sells its products or services. While the franchisor can suggest resale prices, the franchisee must have the freedom to deviate from these recommendations. However, there is an exception: the franchisor can establish maximum resale prices.

In-term non-compete and non-solicitation clauses are enforceable during the agreement’s validity. These covenants typically extend for six months, occasionally up to two years post-termination, depending on the business type. If a longer period is necessary, the ex-franchisee must receive compensation to prevent the extension from being deemed unreasonable and void.

Shielding the Brand and Other Intellectual Property

When it’s come to trademark its safeguarding through registration or by demonstrating its widespread recognition within its market. However, proving the latter in court can be challenging, making trademark registration advisable for protection. Registration is done at the Swedish Patent and Registration Office, lasting 10 years and renewable for additional 10-year periods. Sweden has ratified the Protocol Relating to the Madrid Agreement on International Registration of Marks and recognizes European Community Trademarks.

Liability

Swedish disclosure law directs that a franchisor who fails to provide required information can be court-ordered to disclose and amend the document for future use. Failure to comply may result in a penalty to the government. However, the franchisee cannot rescind the agreement or claim damages due to lack of information. Nonetheless, this omission could render onerous clauses void under the Swedish Contract Act. While untested in court, such arguments may challenge enforceability, setting a precedent if uphold by higher courts.

Governing Law

Under the principle of freedom of contract, both franchisor and franchisee can mutually agree on the governing law and jurisdiction for dispute resolution in the franchise agreement. They retain the flexibility to choose Sweden or another jurisdiction for legal proceedings.

Advantage Law Firm helps both franchisees and franchisors.

Indeed, under the principle of contractual freedom, both the franchisor and franchisee have the autonomy to collectively determine the applicable law and jurisdiction for settling disputes in the franchise contract. This grants them the flexibility to opt for Sweden or any other jurisdiction for legal proceedings. Our lawyers have hands on skill in franchise law Sweden and hence provide ongoing advice to both franchisees and franchisors in various franchise chains in Sweden. Contact us if you have questions about franchising or other issues related to franchise law.