Article 3 of the European Code of Honor on Franchising deals quite extensively with, in short, the obligations a franchisor has with regard to the information he provides to aspiring franchisees. This includes the way in which a franchisor publishes (this must be unambiguous and not misleading) and provides information, including financial information, about the franchise organization. However, the provision of information also includes the provision of the franchise agreement, a handbook, any (sub) rental agreement, as well as the provision of forecasts.
An entirely different aspect that is important in the recruitment and selection of franchisees and that can also be found in Article 3 of the European Code of Honor is the pre-agreement and its content. The main reason for a franchisor to enter into a pre-agreement with an aspiring franchisee is often the non-disclosure agreement that forms an important part of the pre-agreement.
Article 4 of the European Code of Honor on Franchising states, roughly translated, that it is an “obligation” of the franchisor to select its franchisees in an adequate manner. This includes, for example, education, personal qualities and whether or not you have sufficient financial resources that are necessary to operate the future company. The latter is not only important for the franchisee himself, but also very important for the franchise organization to which the franchisee wants to join. After all, building and maintaining a financially sound franchise organization will often largely depend on the financial situation of the individual franchisees. In that sense, when new franchisees join the organization, it is also an obligation of a franchisor towards the group of existing franchisees to ascertain well in advance about the financial (im)possibilities of the prospective franchisee. In some cases, it could even be the case that a franchisor does not properly fulfill its obligations towards the existing group of franchisees if it admits someone to the organization of whom it knows in advance or could have suspected that it has insufficient financial resources. to make his franchise business a success. After all, the franchisor pretends to have a successful formula, often with national coverage. Well, if it happens regularly within a franchise organization that, for example, a franchisee has to close his company unintentionally after he has been affiliated with the organization for only a year, this will not only have negative consequences for the name recognition of the franchise organization, but also this can lead to unrest and grumbling among the existing group of franchisees.
As can be seen from the above, it is therefore recommended that, as a franchisor, you ensure that you comply with the provisions of the European Code of Ethics on Franchising and furthermore ensure that a new franchisee is given the European Code of Ethics on Franchising. is handed down.
Ludwig & Van Dam franchise attorneys, franchise legal advice