Franchising is one of the most widespread and effective models of business cooperation in the modern economy. Through this contractual relationship, well-known and established brands (franchisors) enter into partnerships with smaller entrepreneurs (franchisees), allowing them to use protected business models, trademarks, and know-how. In practice, the franchising model leads to the creation of a network of interconnected business entities that operate under the same brand in the market, while remaining legally independent.
In the Croatian legal system, the franchise agreement is not specifically regulated by a special law. However, thanks to business practice, court decisions, and European competition law guidelines, franchise agreements are recognized and applied as sui generis contracts—unique contracts that include elements of several traditional contract types (e.g. licensing, sales, distribution agreements).
The contracting parties – the franchisor and the franchisee – although legally independent entities, establish a long-term cooperation based on mutual economic interdependence.
The franchisor grants the franchisee:
- exclusive rights to sell/provide services in a defined territory,
- business knowledge and experience (know-how),
- the right to use trademarks, names, designs, and other distinctive signs.
In return, the franchisee pays certain franchise fees and commits to complying with operational standards.
According to the type of activity and scope of cooperation, three main types of franchising can be distinguished:
Covers the transfer of a business model and service delivery standards. Common examples include:
- hospitality and hotels
- financial services
- education and consulting
It is characterized by the use of a shared brand, licensed knowledge, interior design, uniforms, procedures, etc.
Focused on the distribution of products to end consumers. Typical examples include:
- clothing retail (e.g. Benetton, Nike)
- automotive industry, fuel, and food sectors
The contract involves not only product sales but also know-how related to sales, marketing, and the use of the trade name.
Involves the transfer of technology or part of the production process. This model is less common and is mainly applied in the food and beverage industry.
Although the law does not prescribe a mandatory form, a written franchise agreement is standard practice in almost all cases. Most agreements follow a standardized structure, which includes the following parts:
- Identification of the parties (franchisor and franchisee)
- Definition of the contract’s purpose
- Basic information about the brand and business model
- Transfer of knowledge, know-how, and technical assistance
- Ensuring the use of the brand, design, marketing tools
- Training and support
- Payment of initial and recurring fees
- Compliance with business standards and contract terms
- Regular reporting and financial monitoring
- Duration and termination of the contract
- Confidentiality clauses
- Dispute resolution and jurisdiction
Franchising represents a powerful tool for business expansion, especially for brands seeking rapid growth without significant capital investment. At the same time, it provides franchisees with a proven business model and reduced market risk.
Even though not specifically regulated by law, the franchise agreement is gaining importance in commercial law, and its flexibility allows adaptation across various sectors and markets.
For the successful conclusion and implementation of a franchise agreement, legal advice is strongly recommended, as a well-drafted contract protects both parties and ensures a long-term and successful partnership.
