Setting up and modifying a franchise formula

Setting up and maintaining a franchise formula

Setting up a franchise formula is more than copying a model agreement. It involves legally formalizing a proven business concept in a way that protects the formula, binds the franchisees, and complies with the mandatory requirements of the Franchise Act. A well-structured formula prevents conflicts years later regarding information, goodwill, changes, and termination. And because formulas evolve with the market, a formula must also be adaptable, within the limits set by law.

Who do we work for?

We assist franchisors setting up a new formula, entrepreneurs wishing to transform their successful business into a franchise formula, existing franchisors looking to modernize their documentation or adapt it to the Franchise Act, and formula owners wishing to modify their formula or expand it with a derivative formula. Additionally, we advise investors looking to build or professionalize a formula.

The legal building blocks of a formula

The franchise agreement

The franchise agreement is the legal heart of the formula. It regulates, among other things, the granting of the right to operate the formula, the fees, the term and renewal, exclusivity and the territory, purchasing and quality requirements, confidentiality, the non-compete clause, the goodwill arrangement, and termination. The Franchise Act imposes mandatory requirements on a number of these subjects, which must be correctly incorporated into the agreement.

The franchise manual

The manual contains the operational implementation of the formula: working methods, corporate identity, quality standards, procedures, and know-how. The manual is typically dynamic and is updated periodically. The relationship between the agreement and the manual is important: changes made via the manual may not be used to circumvent mandatory provisions or the right of consent.

The pre-contractual information

The Franchise Act requires the franchisor to provide the prospective franchisee with a series of information in a timely manner, and at least four weeks before the conclusion of the agreement (Articles 7:913 and 7:914 of the Dutch Civil Code), including the draft agreement, financial information, and details regarding the franchise system. This pre-contractual phase, including the standstill period, must be properly structured, particularly when establishing a franchise system.

Brand, trade name and know-how

The formula derives its value from the brand, the trade name, and the know-how. Sound trademark registration, binding licensing agreements, and protection of the know-how through confidentiality are indispensable. Without this protection, the formula is vulnerable, particularly upon termination or in the event of a dispute with a franchisee.

Modifying a formula

A franchise formula must be able to adapt to the market, but the Franchise Act sets limits on unilateral modification. For significant changes to the agreement or the formula, and for the introduction of a derivative formula, the consent of the franchisees may be required (Article 7:921 of the Dutch Civil Code). Whether consent is required depends on an agreed threshold amount or the financial impact of the change. A change implemented without the required consent will not stand. We advise on structuring a power to modify that is workable while simultaneously respecting the law.

Our working method

When setting up a formula, we start with the business concept and commercial goals, and build the agreement, manual, pre-contractual information, and IP protection from there. When modifying an existing formula, we first assess the existing documentation and the limits of the right of consent, and advise on a viable modification path. At every step, we think ahead: what happens in the event of growth, disputes, and termination?

Which franchise structure suits your formula?

When setting up a franchise formula, the choice of structure is decisive for the years to come. A hard franchise formula strictly defines working methods, purchasing, and presentation; a soft franchise formula allows the franchisee more autonomy. With international or regional growth, a master franchise comes into play, where a master franchisee recruits sub-franchisees in a specific area themselves. Each structure places different demands on the agreement, fees, and control. We advise both the international group rolling out a chain and the entrepreneur with a single successful business who wants to turn the corner bakery into a franchise store, and together with you, we choose the structure that suits your ambition and sector.

Competition law and vertical agreements in the formula

A formula stands or falls on uniformity, but the agreements that guarantee uniformity touch upon competition law. Exclusivity and territorial protection, purchasing obligations, non-compete clauses, and agreements on sales prices are assessed under the cartel prohibition (Article 6 of the Dutch Competition Act and Article 101 TFEU) and the European Group Exemption for vertical agreements. A fixed or minimum resale price is prohibited in principle; a recommended retail price or maximum price is permitted under certain conditions. We assess the formula agreements against these rules so that the agreement protects the formula without failing under competition law.

Consultation, right of consent and the franchise council

The Franchise Act obliges the franchisor to provide assistance and to consult with the franchisees at least annually (Article 7:919 of the Dutch Civil Code). In addition, a right of consent applies: substantial changes to the formula and the introduction of a derivative formula may require the consent of the franchisees (Article 7:921 of the Dutch Civil Code), whereby an agreed threshold amount or the financial impact determines whether such consent is required. Anyone establishing a formula would do well to set up the consultation structure, any franchise council, and a franchisees' association in a workable manner from the outset. Well-structured consultation prevents necessary changes from failing later due to the right of consent.

Termination, goodwill and the non-compete clause

You also design a formula for the moment a franchisee leaves. The Franchise Act mandates an arrangement regarding the manner in which goodwill is determined and compensated upon termination (Article 7:920 of the Dutch Civil Code). A post-contractual non-compete clause is only valid if it has been agreed upon in writing, lasts no longer than one year, is limited to the territory in which the franchisee was active, and is indispensable for protecting the know-how (also Article 7:920 of the Dutch Civil Code). These provisions are mandatory law: deviation to the detriment of a franchisee established in the Netherlands is not possible (Article 7:922 of the Dutch Civil Code). By properly regulating termination, goodwill, and competition at the outset, you prevent the very end of a partnership from leading to a costly dispute.

Franchise team: from international corporation to the baker on the corner

Setting up and modifying a franchise formula requires knowledge of both corporate law and contractual matters. At MKB Juristen, lawyers and in-house counsel work together as a team, ensuring you receive both sharp legal advice and practical, entrepreneur-oriented guidance. We serve both international corporations rolling out a chain and entrepreneurs setting up their first franchise store, at transparent rates. This page is part of our broader expertise in Franchise Legal Advice, where you can turn to us for all legal issues surrounding franchising.