Franchising in Switzerland: how to structure it

Franchising is the model by which a business that has developed a successful commercial formula — a trademark, know-how, an operating method — grants it to independent entrepreneurs who replicate it in their own outlets, in return for a fee. It is the engine of many chains in catering, retail and services. In Switzerland franchising has no dedicated law: it is built by combining institutions from the Code of Obligations and trademark law. Precisely for this reason, the quality of the contract makes all the difference.

An atypical contract to be tailored to measure

The franchise agreement is innominate: there is no specific legal framework governing it. For this reason it draws on several figures — licence lease, distribution contract, mandate, sale — and must be drafted with care, because every gap will be filled by the general principles of the law of obligations, not always in the sense intended by the parties.

There are two protagonists:

• the franchisor, who makes available the trademark, know-how, assistance and operating system;
• the franchisee, an autonomous entrepreneur who runs the business at their own risk, complying with the network’s standards.

The key point is that the franchisee remains legally and economically independent: they are neither an employee nor a branch. The network imposes standards on them, but not a relationship of subordination. Confusing the two levels is one of the most costly mistakes.

The franchisor’s obligations

Whoever grants the formula generally undertakes to:

• grant the use of the trademark and other distinctive signs for the duration of the contract;
• transfer the know-how, that is, the body of practical knowledge, procedures and operating manuals that constitute the network’s value;
• provide initial and ongoing training and assistance;
• protect the territory granted on an exclusive basis, where applicable.

The quality of the know-how is what justifies the payment of royalties: it must be concrete, up to date and genuinely transferred, not a generic promise.

The franchisee’s obligations

On the opposite side, the franchisee undertakes to:

• pay the fees: typically an initial entry fee and periodic royalties calculated on turnover, plus any contributions to network marketing;
• comply with the operating, image and quality standards of the chain;
• not compete with the network during the relationship and, within reasonable limits, after its termination;
• maintain confidentiality over the know-how received.

The balance between the uniformity of the network and the autonomy of the entrepreneur must be calibrated carefully: standards that are too rigid can in effect turn the relationship into something akin to employment, with unforeseen consequences.

The critical points to keep in check

Some clauses deserve particular attention because they are the most frequent sources of conflict:

• territorial exclusivity: precisely define the reserved area and whether the franchisor may sell there through other channels, including online;
• duration and renewal: a franchisee’s investment requires a duration adequate for amortisation;
• termination and the fate of investments: what happens to stock, fittings and clientele at the end of the relationship;
• trademark protection: verify that the signs granted are actually registered and protected in Switzerland;
• pre-contractual information: provide the franchisee with truthful data on the formula’s potential, to avoid disputes over the validity of consent.

On the competition-law front, clauses that set prices or limit sales channels must also be assessed, because they may fall under the rules on cartels.

Why the model works

Well structured, franchising allows the franchisor to expand the network with third-party capital and motivated entrepreneurs, and the franchisee to start a business on a proven formula while reducing entrepreneurial risk. But this balance holds only if the contract clearly distributes rights, obligations and risks. An unbalanced or incomplete agreement jeopardises the entire network, not just the individual outlet.

How we work at SIH ONE

We assist both those who want to build a franchise network and those considering joining one. We draft and review the contracts, taking care of the trademark, know-how, royalties, exclusivity and exit clauses, we verify the registration of the distinctive signs and the competition profiles, and we structure the pre-contractual information.

Do you want to expand your brand through franchising or join a network on solid contractual foundations? Discover the services of our tax-legal division and structure your project the right way.