International Legal Comparative Guide - Franchise 2019

For more information about Franchising in France, please read ILCG FRANCE

or see below :

 

What is the legal definition of a franchise?

Under French law, there is no regulation that defines a franchise.  The franchise definition has been constructed by the French Courts and authors, and any relationship containing the following elements is considered a franchise agreement: 

■ a right to use a registered trademark; and 

■ the transfer of know-how. 

Even if the relationship is not qualified by the parties as a franchise agreement, each agreement containing the abovementioned elements might be regarded as a franchise agreement, and implies that the Franchisor provides the Franchisee with support, the final aim being the profitability of the franchise business.

 

What laws regulate the offer and sale of franchises?

The offer and sale of franchises is specifically regulated by article L.330-1 and R.330-3 of the French Commercial Code – which covers in general all exclusive trademark licence relationships.

Franchise operations are also governed by French contract rules which are established in the French Civil Code, as well as by the general rules applying to all commercial relationships in the French Commercial Code.  

 

If a franchisor is proposing to appoint only one franchisee/licensee in your jurisdiction, will this person be treated as a “franchisee” for purposes of any franchise disclosure or registration laws?

Yes, this person will be regarded as a “Franchisee” and treated as such even if it is the only franchisee in the French territory.  However, in case this unique “Franchisee” is entitled to sub-franchise its rights in the French territory, it may be regarded as a “Master-Franchisee”. 

 

Are there any registration requirements relating to the franchise system?

Under French law, the only registration requirement relating to the franchise system is to deposit and register the trademark that will be granted to the Franchisee. 

There is, however, no obligation for the Franchisor to register their franchising activity, nor to register the franchise agreements executed with Franchisees.  The trademark licence granted to the Franchisee may however be registered before the trademark office that has generated the related trademark (for a national brand, said office is called “INPI”), even if there is no obligation to do so.

 

Are there mandatory pre-sale disclosure obligations?

Pursuant to article L.330-3 of the French Commercial Code, the Franchisor must provide the Franchisee with a “Pre-contractual Information Document” (disclosure document) at least 20 days before the signing of a franchise contract, and at least 20 days before the payment of any sum or any investment in relation to the franchise relationship.

This disclosure document shall contain the following information, which is detailed at article R.330-1 of the French Commercial Code: 

■ the Franchisor’s information (company name, registered office, form, capital, manager, registration number);

■ their trademark registration number and registration number of the trademark licence agreement if relevant; 

■ the Franchisor’s banking information (bank address, account number); 

■ the Franchisor’s audited financial statements regarding the past two years; 

■ the history and presentation of the company and of the network; 

■ the general and local market “statements” (presentation) and development prospects of the general and local market; 

■ a list of the undertakings of the network, and nature of their relationship with the Franchisor (franchise agreement, subsidiaries, JVs, etc.); 

■ the address of the franchised undertakings located in France, conclusion and renewal dates of the related franchise contract; 

■ the number of Franchisees which have left the network the year before the issuance of this document, detailing whether this has resulted from expiry, cancellation or termination of the contract; 

■ the presence of any undertaking member of the network in the same territory, and distribution of services or products that are the subject of the franchised business in the same territory; 

■ the most important provisions of the contract: duration; renewal; termination; assignment; exclusive rights; and 

■ the investments linked to the franchise operation.

The Franchisor shall also deliver any other information that may be relevant in the candidate’s decision to enter into the Franchise Agreement.  This general obligation has been implemented in the French Civil Code in 2016. 

 

Do pre-sale disclosure obligations apply to sales to sub-franchisees? Who is required to make the necessary disclosures?

Yes, the obligation to provide a pre-contractual information document complying with articles L.330-3 and R.330-1 of the French Commercial Code also applies to sales performed to Sub-Franchisees.  The Master-Franchisee in charge of recruiting the Sub-Franchisees located in France shall thus provide the candidate to a Sub-Franchise agreement with the precontractual information document at least 20 days prior to the related sub-franchise agreements’ execution and at least 20 days before any payment or investment in relation to the sub-franchise relationship.

 

Is the format of disclosures prescribed by law or other regulation, and how often must disclosures be updated?  Is there an obligation to make continuing disclosure to existing franchisees?

The disclosure document shall contain the information listed at articles L.330-3 and R.330-1 of the French Commercial Code, which are detailed in question 1.5 above.  However, there is no format prescribed by the law.

The disclosure document shall be updated for each candidate. 

There is no obligation to provide updated information to the current Franchisees during the franchise relationship.

 

 Are there any other requirements that must be met before a franchise may be offered or sold?

French Courts dictate that the Franchisor has a duty to experiment/test the concerned business and concept before franchising it, and will usually request the Franchisor to prove that the concept has been operated in owned operations for at least two years before the franchise development started, and that this experimentation is profitable.

 

Is membership of any national franchise association mandatory or commercially advisable?

No membership of a national franchise association is mandatory.  However, membership of the French Federation for Franchising (Fédération Française de la Franchise) is advisable, inter alia,since the Fédération Française de la Franchise provides training regarding franchising in France, and contributes to Franchise Expo Paris, which is a well-known annual French franchise exhibition.

 

Does membership of a national franchise association impose any additional obligations on franchisors?

The Fédération Française de la Franchisewill, inter alia,verify if the franchise disclosure document and franchise agreements comply with the European Code of Ethics for Franchising.   

 

Is there a requirement for franchise documents or disclosure documents to be translated into the local language?

There is no mandatory obligation to translate the documents into French. However, translation is strongly advisable, particularly in order to be able to prove that the Franchisee has been provided with clear and understandable information before signing the Franchise Agreement. 

In the course of a litigation, French Courts will require an official translation of any documents drafted in a foreign language.