{"id":151532,"date":"2026-10-08T08:56:59","date_gmt":"2026-10-08T08:56:59","guid":{"rendered":"https:\/\/www.legal500.com\/guides\/?post_type=comparative_guide&#038;p=151532"},"modified":"2026-10-08T08:56:59","modified_gmt":"2026-10-08T08:56:59","slug":"germany-franchise-licensing","status":"publish","type":"comparative_guide","link":"https:\/\/www.legal500.com\/guides\/chapter\/germany-franchise-licensing\/","title":{"rendered":"Germany: Franchise &amp; Licensing"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-151532","comparative_guide","type-comparative_guide","status-publish","hentry","guides-franchise-licensing","jurisdictions-germany"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">GSK Stockmann<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/www.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2023\/10\/GSK_Stockmann_Logo_4c.jpg\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">GSK Stockmann<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/www.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2023\/10\/GSK_Stockmann_Logo_4c.jpg\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Franchise &amp; Licensing laws and regulations applicable in Germany<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a legal definition of a franchise and, if so, what is it?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no statutory definition of franchising in Germany, nor is there a dedicated franchise statute. Franchising has been developed through practice and case law and is governed by the general provisions of the German Civil Code (<em>B\u00fcrgerliches Gesetzbuch<\/em>, BGB) and the German Commercial Code (<em>Handelsgesetzbuch<\/em>, HGB), together with competition, unfair trade and intellectual property law. The German Franchise Association (<em>Deutscher Franchiseverband<\/em>, GFA) provides a definition that is recognised in part by the courts: franchising is a distribution system based on close and ongoing cooperation between legally and financially independent undertakings, under which the franchisor grants the franchisee the right, and imposes the obligation, to operate in accordance with the franchisor&#8217;s concept, using the franchise system&#8217;s name, trademarks, know-how and business methods, against direct or indirect remuneration and with the franchisor&#8217;s ongoing commercial and technical support, for the term of a written franchise agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any structuring considerations for foreign franchisors (e.g. use of master franchisees, local presence requirements)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Germany imposes no local presence, nationality or residency requirements, draws no distinction between EU and non-EU franchisors and requires no approval for market entry or for the granting of master franchise or development rights. The franchisor may contract directly with each German franchisee or appoint a master franchisee, which then contracts with the sub-franchisees in its own name and owes them the pre-contractual duty of disclosure. The German contracting party may be the foreign franchisor or a local subsidiary, typically a limited liability company (<em>Gesellschaft mit beschr\u00e4nkter Haftung<\/em>, GmbH) with share capital of EUR 25,000. This choice has tax consequences and should be settled before the structure is fixed (see Question 19).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any requirements that must be met prior to the offer and\/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are no franchise-specific pre-offer requirements: no registration, filing, licensing or prospectus is required. The only binding duty is the pre-contractual duty of disclosure (see Question 5), the breach of which gives rise to damages (see Question 7). General rules apply, in particular with regard to securing trademark rights and completing the corporate formalities for any local entity. In addition, GFA members must observe the association\u2019s code of ethics, which requires a concept that has been operated successfully for an appropriate period with at least one pilot operation, ownership or lawful use of the franchise system\u2019s signs, as well as initial training and ongoing support throughout the term (see Question 28).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any registration requirements for franchisors and\/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations?  If so, please describe.  Are there any practical or timing implications (e.g. typical registration timelines, delays in practice)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no franchise-specific registration regime. Neither the franchise system nor the franchise agreement or disclosure document have to be registered or approved, nor is government consent required. Accordingly, there is nothing to update and no sanction for non-registration. Registration duties arise only from general law: a GmbH must be entered in the Commercial Register (<em>Handelsregister<\/em>), which takes a few weeks from notarisation; the business must be notified to the trade office, usually immediately; beneficial ownership must be notified to the Transparency Register; and trademarks require registration to be protected. Brand clearance and trademark filings should begin well before market entry, as national and EU registrations take several months and may be delayed due to opposition.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made (is there a minimum disclosure period before signing or payment (e.g. cooling-off period)), is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply.   Is there an obligation to update and\/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)? What are the consequences of late or incomplete disclosure?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Germany has no franchise-specific disclosure statute. From the commencement of negotiations the parties are subject to a statutory duty of consideration (Sections 311(2) and 241(2) BGB), breach of which gives rise to damages under the principle of <em>culpa in contrahendo<\/em>. The duty is mutual and based on good faith. There are two aspects: the franchisor may not induce the franchisee to sign the franchise agreement by making untrue statements, and it may not withhold circumstances known to it which it knows will influence the franchisee\u2019s decision. The scope of this duty depends on the franchisee\u2019s need for information and the parties\u2019 respective means of obtaining it, and increases with the franchisee\u2019s inexperience and the size of the investment. Disclosure is required on the franchise system and its development, the value of the know-how, the capital and labour required and achievable turnover, including figures from comparable outlets, so that the franchisee can assess profitability and start-up losses. The franchisor is not obliged to prepare a profitability calculation or a location analysis, nor to guarantee success; the franchisee bears its own entrepreneurial risk. The GFA guidelines and checklist serve as the recognised benchmark.<\/p>\n<p>No specific format or German-language version is prescribed (see Question 32), but the written form is strongly advised, and the disclosure should be recorded in a signed protocol attached to the franchise agreement. The duty begins upon first contact. The information should be supplied no later than two weeks before signing and does not extend to reservation agreements. There is no general cooling-off period, although an individual franchisee establishing an independent business may withdraw within 14 days if the franchise agreement obliges it to accept repeated deliveries and its investment does not exceed EUR 75,000. In sub-franchising arrangements, the sub-franchisor is solely responsible. Good faith generates a continuing duty to report developments materially affecting the franchisee\u2019s business or the franchise system, meaning that key data must be updated on renewal and in the event of a material change. Late, incomplete and incorrect disclosures are treated alike (see Question 7).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs' parent company or must disclosure be made to each individual SPV franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>As the duty of disclosure applies to the pre-contractual relationship with the prospective counterparty, disclosure must in principle be made to each entity that is to become a party, and therefore to each SPV. If the SPVs are wholly owned by the same parent and the same individuals negotiate on their behalf, disclosure to the parent and to those individuals will normally suffice, since they are considered to have the same knowledge as the SPVs. In multi-unit structures, it is nevertheless safer to send the package to each SPV for written acknowledgement and to supplement the generic franchise system information with data for the relevant location, as it is the location-specific information that is later said to have been withheld. If the parent or the principals also provide personal guarantees, they should receive the disclosure directly.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What actions can a franchisee take in the event of mis-selling by the franchisor?  What are the main legal grounds for such claims (e.g. misrepresentation, statutory disclosure breaches, unfair commercial practices)?  To what extent can liability be excluded or limited by non-reliance or entire agreement clauses or disclaimers in the franchise agreement, disclosure document or sales material?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The principal claim is for breach of the pre-contractual duty of disclosure (see Question 5). The franchisee must be put in the position it would have been in had the breach not occurred, which covers the entry fee, ongoing fees, financing and leasing instalments and operating losses, offset by income and realisation proceeds. Damages may be claimed in the form of money, an adjustment of the franchise agreement or restitution in kind, in which case the franchisee is released from the franchise agreement and recovers the fees and its expenses against surrender of the benefits received. Restitution in kind requires proof of financial loss. Avoidance for fraudulent misrepresentation may be claimed in parallel, and misleading commercial practices are also covered by the Act Against Unfair Competition (<em>Gesetz gegen den unlauteren Wettbewerb<\/em>, UWG). Claims may extend to third parties in a particular position of trust or with their own economic interest, including managing directors, consultants and tax advisers. Liability cannot be excluded by disclaimers, non-reliance or entire agreement clauses. Claims are time-barred three years from the end of the year in which the claim arose and became known.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Would it be legal to issue a franchise agreement on a non-negotiable, \"take it or leave it\", basis?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no obligation to negotiate and such a franchise agreement is valid as such. However, pre-formulated terms intended for repeated use that cannot be influenced by the franchisee are standard business terms and are subject to the German law on general terms and conditions (Sections 305 to 310 BGB). Under this regime, every such provision must be reasonable and must not unduly disadvantage the franchisee contrary to good faith; otherwise, it is void (Section 307 BGB). A clause is invalid in particular where it departs from the essential principles of the statutory rule it replaces, jeopardises the contractual purpose or is unclear or unintelligible. The court cannot reduce an excessive clause to a permissible level, but must strike it out in full. German law is otherwise characterised by contractual freedom, meaning that restrictions on franchise agreement terms are the exception and follow mainly from competition law and from the law on general terms and conditions. In practice, the latter is the most important limit on German franchise agreements.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How are trademarks, know-how, trade secrets and copyright protected in your country?  Are there any specific requirements or risks relating to the licensing of know-how and trade secrets in a franchise context?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Trademarks are protected under the Trademark Act (<em>Markengesetz<\/em>, MarkenG), normally through registration as a national mark with the German Patent and Trademark Office, as an EU trademark with the European Union Intellectual Property Office, or through an international registration designating Germany. Words, logos, letters, numerals, colours and sounds can be registered, and in exceptional cases, protection may arise without registration in cases where a sign has acquired public recognition in the relevant industry. Protection lasts for ten years from the filing date and is renewable indefinitely. Because the offices do not check for earlier rights, clearance searches and watch services are essential. Copyright in manuals, training materials and software arises without registration. Know-how and trade secrets cannot be registered and are protected under the Trade Secrets Act (<em>Gesch\u00e4ftsgeheimnisgesetz<\/em>, GeschGehG), provided that the holder has taken appropriate confidentiality measures. Therefore, \u00a0a franchisor that fails to do so loses statutory protection. Know-how must therefore be identified and documented, the manual marked confidential and access-restricted, confidentiality imposed on the franchisee, its principals and staff, even after termination, and technical and organisational safeguards evidenced. Licensing requires no registration, but the licence should define the permitted purpose and provide for the return or deletion of materials. The post-term prohibition on using know-how that has not entered the public domain may be agreed for an unlimited period. All rights are enforceable by injunction and by claims for damages.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are no franchise-specific statutes governing the ongoing relationship, which is subject to the general provisions of the BGB and HGB, competition law and, above all, German law on general terms and conditions (Sections 305 to 310 BGB). Clauses on changes to the franchise system, fee adjustments, reporting, purchasing obligations, contractual penalties and termination are all assessed against Section 307 BGB. Commercial agency provisions apply by analogy where the franchisee is integrated into the franchisor&#8217;s distribution organisation in a manner economically comparable to a commercial agent, most importantly the goodwill indemnity (see Question 16) and the statutory notice periods (see Question 25). While no clause is mandated by statute, for clarity the franchise agreement should cover the subject matter of the licence, the territory and premises, the duties of both parties, purchasing arrangements, marketing and advertising funds, confidentiality and know-how, data protection, term, termination and post-term obligations, dispute resolution and, where applicable, withdrawal information. Where the franchisee is a company, a personal guarantee from its director or principal shareholder is market practice.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales or use of online marketplaces (e.g. Amazon, third-party platforms), insist on exclusive supply, fix or set maximum retail prices, operate dual distribution\/hybrid franchisor models)? If applicable, provide an overview of the relevant competition laws.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>German competition law has been fully aligned with EU law since 2005, meaning that vertical restraints are assessed under Section 1 of the Act against Restraints of Competition (<em>Gesetz gegen Wettbewerbsbeschr\u00e4nkungen<\/em>, GWB) and Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) in parallel. Restraints that are essential for maintaining the identity and reputation of the franchise system, or for protecting the transferred know-how fall outside the prohibition altogether (Court of Justice, 28 January 1986, Case 161\/84, Pronuptia). Otherwise, an exemption is available under Regulation (EU) 2022\/720 (the Vertical Block Exemption Regulation, VBER), in force since 1 June 2022 and interpreted in conjunction with the Vertical Guidelines, provided neither party\u2019s market share exceeds 30 per cent; above that threshold an individual assessment is required.<\/p>\n<p>Resale price maintenance is prohibited and cannot be exempted; the franchisee must remain free to set its own prices. Maximum prices and genuinely non-binding recommendations are permitted, provided they do not effectively operate as fixed prices through pressure or incentives, such as rebates or supply priority. Minimum advertised price policies are treated as indirect price fixing. Fixed prices are acceptable only for a coordinated campaign lasting a few weeks. As to online sales, the test is whether the restriction prevents the effective use of the internet: a ban on online sales on the franchisee\u2019s own website or on price comparison services does so in principle and constitutes a hardcore restriction. In contrast, a prohibition on third-party marketplaces such as Amazon does not, and may be exempted, as may quality requirements for the franchisee\u2019s online presence and rules on the use of franchise system domains and social media. Purchasing and non-compete obligations are exempt for up to five years, or for the period during which the franchisor owns or leases the premises. Exclusive territories may be protected against active sales, but passive sales may not be restricted (see Question 20). Dual distribution is exempt, although the exchange of information is covered only where necessary to implement the franchise agreement, so firewalls and aggregated data should be used.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any ESG, compliance or supply chain-related legal requirements impacting franchise systems?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Although there are no franchise-specific ESG rules, general requirements are increasingly affecting franchise systems. The Supply Chain Due Diligence Act (<em>Lieferkettensorgfaltspflichtengesetz<\/em>, LkSG) imposes human rights and environmental due diligence duties on undertakings with at least 1,000 employees in Germany. As franchisor and franchisee are separate undertakings and their employees are not aggregated, many franchisors fall below the threshold. However, larger franchise systems and members of international groups are in scope, while others are covered contractually through supplier codes and flow-down clauses. The regime is being aligned with Directive (EU) 2024\/1760, the scope of which has been narrowed and deferred. Product, packaging and waste rules, greenwashing exposure for sustainability claims, internal reporting channels and group-level sustainability reporting are also relevant. The key question for franchises is to what extent such duties can be passed on to independent franchisees. This requires clear, proportionate and transparent provisions, since open-ended obligations to comply with whatever standards the franchisor adopts risk being deemed invalid under the law on general terms and conditions. Excessive control also increases the status risks described under Question 15.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are in-term non-compete and non-solicitation clauses enforceable and are there any limitations on the franchisor's ability to impose and enforce them?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In-term non-compete obligations are enforceable within the limits of competition law and of the law on general terms and conditions. They are treated like purchasing obligations: they fall outside Article 101(1) TFEU where they are essential for protecting the identity and reputation of the franchise system or the transferred know-how, and otherwise require exemption under the VBER, which permits a term of no more than five years, subject to the exception for premises owned or leased by the franchisor and to the market share thresholds. Non-solicitation needs to be distinguished. A prohibition on soliciting customers of the franchisor or of other franchisees is, in substance, a limited non-compete obligation and is assessed on the same basis. A no-poach clause covering each other\u2019s staff is more problematic, as such arrangements are increasingly being treated by the European Commission and the German Federal Cartel Office as labour market restrictions which, between undertakings competing for staff, may amount to a restriction by object. In addition, the restraint must be no broader than necessary and sufficiently specific, and must not deprive the franchisee of its entrepreneurial freedom. Otherwise, it is void in full, as German law does not permit reduction to a permissible core element. Enforcement is by injunction and, in urgent cases, by interim injunction, backed by coercive penalty payments.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there an obligation (express or implied) to deal in good faith in franchise relationships?  If so, what practical effects does this have on the relationship between franchisor and franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. Performance in accordance with good faith is a fundamental principle of German law (Section 242 BGB) and applies without any express clause. The duty is mutual and cannot be restricted in favour of one party. It forms the basis of the pre-contractual duty of disclosure and of the continuing duty to inform the franchisee of developments materially affecting its business or the franchise system, and the fairness control under German law on general terms and conditions. It also requires discretionary rights, such as changes to the franchise system, consent to transfers and termination, to be exercised with regard to the legitimate interests of the other party rather than for an extraneous purpose. It also limits the right to refuse a renewal if the franchisor has induced an investment shortly before expiry of the contract (see Question 24). Any breaches may render a clause unenforceable, give rise to damages, or, in serious cases, justify termination.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What level of operational control may a franchisor exercise without creating employment or agency risk?  What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The risk is not that the franchisee&#8217;s staff become the franchisor&#8217;s employees, but rather that the franchisee itself is reclassified. As the franchisee&#8217;s employees are employed by the franchisee, and franchisees act in their own name and for their own account, there is, in principle, no joint employment and no vicarious liability of the franchisor. Reclassification turns on the degree of control exercised and the entrepreneurial risk borne. Personal dependency indicates employee status and is assumed where the franchisee is excessively bound by instructions as to the content, conduct, time, duration and place of its activity. Economic dependency indicates quasi-employee status, which brings a limited set of employment rules into play, and is assumed where the franchisee&#8217;s livelihood derives from the franchise business. A corporate franchisee does not normally risk employee status. \u201cBogus self-employment\u201d can trigger retrospective social security contributions and criminal liability.<\/p>\n<p>The franchisor may prescribe what the identity of the franchise system requires, including brand presentation, product range, quality standards, manuals, training and reporting. Control becomes critical where it extends to the franchisee&#8217;s personal working hours, holidays or staff deployment, or prevents the franchisee from employing staff or developing its own business. This risk is mitigated by preserving entrepreneurial freedom and risk in the drafting of contracts and in practice, by contracting with corporate franchisees and by framing requirements as objective franchise system standards rather than personal instructions. In case of doubt, a status determination procedure can be carried out by the German Pension Insurance.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A franchisee acting in its own name and for its own account is not a commercial agent, and such a characterisation is rare. The practically relevant risk is the analogous application of the goodwill indemnity on termination (Section 89b HGB). Under the established case law of the Federal Court of Justice, this requires two conditions: the franchisee must be integrated into the franchisor&#8217;s distribution organisation to such an extent that its duties are economically comparable to those of a commercial agent to a considerable degree, and it must be obliged, directly or indirectly, to transfer its customer base to the franchisor upon termination at the latest. This entitlement cannot be waived in advance and is excluded where termination is for cause attributable to the franchisee. In anonymous mass-market businesses where no identifiable customer base is transferred, the analogy generally fails. The risk can be mitigated by not imposing an obligation to transfer the customer base and ensuring that central customer relationship management, loyalty or booking platforms do not achieve the same result in practice (see Questions 21 and 24).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and\/or how much interest can be charged? Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?  Are there any restrictions on structuring payments (e.g. royalties vs service fees vs mark-ups)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are no exchange controls, no restriction on paying royalties or other fees to a foreign franchisor and no requirement that payments under the franchise agreement be made in euros; the parties may choose the currency freely. The default interest rate is nine percentage points above the base rate for transactions between entrepreneurs, together with a fixed sum for late payment. A higher contractual rate is permissible in principle, but, in standard terms, an excessive rate or a flat-rate damages clause that exceeds the typically expected loss or denies the franchisee of the right to prove a lower loss is risky under German law on general terms and conditions. Fees may combine entry fees, royalties, marketing contributions, service fees and supply margins. Constraints include transparency of the fee basis and any adjustment mechanism, the application of marketing funds to their purpose with an account to franchisees, and economic substance. The characterisation of a payment affects withholding tax (see Question 19), but the tax authorities will examine substance, and intra-group charges must be at arm\u2019s length.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Contractual penalties are permitted and widely used in franchise agreements to secure confidentiality, non-compete, franchise system standard and reporting obligations. If contained in standard terms, they are subject to strict control under the law on general terms and conditions. The secured obligation and the triggering conduct must be described precisely, the penalty must depend on fault, the amount must be appropriate to the significance of the breach, a maximum must be set for continuing or repeated breaches and it must be possible to credit the penalty against damages. A fixed penalty that proves excessive is void in its entirety rather than being reduced. Merchants cannot obtain a judicial reduction, so the preferred approach is the \u201cHamburg practice\u201d (<em>Hamburger Brauch<\/em>): no figure is agreed in advance; the franchisee undertakes to pay a penalty to be determined by the franchisor at its reasonable discretion for each breach, and the franchisee may have that determination reviewed by the court. The amount is then set in the light of the gravity of the individual breach. Injunctive relief remains the more valuable remedy in practice (see Question 13).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>An entity with its registered office or place of management in Germany is resident for tax purposes and, subject to any double taxation treaty, is liable for tax on its worldwide income. Corporate profits are subject to corporate income tax of 15 per cent, plus a solidarity surcharge of 5.5 per cent of that tax, giving 15.825 per cent, in addition to municipal trade tax. This is not a deductible business expense and its rate depends on the multiplier set by the municipality. Consequently, the aggregate tax burden on corporate profits is commonly around 30 per cent. Partnerships are transparent for income tax purposes, but are themselves subject to trade tax, subject to an annual allowance. Individuals and partners pay progressive income tax of up to 45 per cent, with the solidarity surcharge now payable only above high income thresholds. They may also credit part of the trade tax against their income tax. Non-residents are taxed on German-source income, and profits attributable to a German permanent establishment are subject to corporate or income tax and trade tax. Royalties are subject to withholding tax. Payments for the licensing of trademarks, know-how or other rights of use to a franchisor that is neither resident in Germany nor has a permanent establishment here are taxed at source on the gross amount, without deduction of expenses, at a rate of 15 per cent plus the solidarity surcharge, giving a total of 15.825 per cent. The franchisee must withhold, declare and remit the tax and is liable for it if it does not. Relief under a double taxation treaty or the EU Interest and Royalties Directive is not automatic. The franchisee may only refrain from withholding on the strength of an exemption certificate issued in advance by the Federal Central Tax Office, which takes time and should be applied for before the first payment falls due. Where the franchise agreement requires payment free of deductions, the gross-up forms part of the taxable base. Genuine service fees are generally outside the scope of royalty withholding tax, which is why fee structuring matters. However, a mixed franchise fee must be apportioned on a defensible basis and reflect what is actually supplied. The apportionment matters for trade tax purposes as well, since part of the licence element is added back above a statutory allowance. Intra-group arrangements require transfer pricing documentation. Where the franchisor is established abroad, VAT on the licence, at the standard rate of 19 per cent, is accounted for by the franchisee under the reverse charge mechanism.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How is e-commerce regulated and does this have any specific implications on the relationship between franchisor and franchisee?  For example, can franchisees be prohibited or restricted in any way from using e-commerce in their franchise businesses?  Are there any rules regarding online sales within or outside a franchisee\u2019s territory?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no franchise-specific e-commerce regime. Online trading is governed by the general legal provisions, including the distance contract and information duties of the BGB, imprint requirements, the UWG, the Digital Services Act regime, data protection law and the Geo-Blocking Regulation. Compliance is primarily the franchisee\u2019s responsibility for its own sales, although the franchisor usually supplies the imprint, withdrawal and price information centrally. The franchise relationship itself is governed by competition law (see Question 11): the franchisee may in principle not be prohibited from selling online or from operating its own online shop, but quality and brand presentation standards, rules on the use of franchise system domains and social media, and prohibitions on third-party marketplaces are permissible. Active online sales into another party&#8217;s exclusive territory, such as targeted advertising or territory-specific domains, may be prohibited, but passive sales may not. The franchisee must be able to fulfil unsolicited orders from outside its territory and cannot be obliged to redirect such enquiries. The usual solutions are a non-binding referral arrangement or a central channel operated by the franchisor with an agreed compensation mechanism.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the applicable data protection laws and do they have any specific implications for the franchisor\/franchisee relationship?   In particular, what are the key data protection considerations in a franchise relationship, including: (a) allocation of controller\/processor roles; (b) use of customer databases; (c) cross-border data transfers; and (d) marketing and CRM activities?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The General Data Protection Regulation (GDPR) applies, supplemented by the Federal Data Protection Act (<em>Bundesdatenschutzgesetz<\/em>, BDSG) and, for cookies and tracking, telecommunications data protection law. Franchisor and franchisee are separate undertakings and separate addressees of these rules, and fines may reach EUR 20 million or 4 per cent of worldwide annual turnover. (a) Roles must be assessed function by function, and the label used in the franchise agreement is not decisive: each party is normally a separate controller for its own purposes; the franchisor a processor where it merely operates IT systems on the franchisee\u2019s instructions; and both parties are joint controllers where they jointly determine purposes and means, as is typical for loyalty programmes and customer databases operated across the franchise system. In the latter case, an arrangement under Article 26 GDPR is required. (b) Every use of a customer database needs its own legal basis, and sharing franchisee customer data with the franchisor or other franchisees requires its own justification. An obligation to hand over customer data upon termination is frequently unlawful and increases the goodwill indemnity risk (see Question 16). (c) Transfers outside the European Economic Area, including mere access by group companies or IT providers, require an adequacy decision, the standard contractual clauses with a transfer impact assessment or another instrument under the GDPR. (d) Electronic marketing requires prior consent, obtained in practice through double opt-in. As consent collected by one party does not extend to the other, the franchise agreement should define who collects which permissions for whom.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the franchisor permitted to restrict the transfer of (a) the franchisee's rights and obligations under the franchise agreement or (b) the ownership interests in the franchisee?  Can the franchisor impose conditions on transfers (e.g. approval rights, fees, qualification criteria)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes, to both. It is standard and enforceable practice to make any sale, transfer, assignment or pledge of the franchised business, or any transfer of ownership interests in the franchisee entity, subject to the franchisor\u2019s prior written approval. Change-of-control provisions covering indirect transfers are likewise enforceable. The purpose is to protect the know-how and integrity of the franchise system. Conditions may be imposed, provided they satisfy German law on general terms and conditions. Objective and transparent criteria for the transferee are unobjectionable, such as personal and financial suitability, completion of training, accession to the current franchise agreement and settlement of outstanding fees, as is an administration fee reflecting the actual cost of the transfer. By contrast, consent exercisable at the franchisor\u2019s free discretion or a fee amounting to a share of the sale proceeds is open to challenge. Consent may not be withheld arbitrarily where the transferee meets the agreed criteria. Rights of first refusal and purchase options are permissible in principle, whereas step-in rights and irrevocable powers of attorney are regularly held to unduly disadvantage the franchisee.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">To what extent can a franchisor impose audit rights, reporting obligations, and operational controls on a franchisee, and what legal limits apply?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Extensive reporting and inspection rights are permissible and, in practice, necessary to verify fees, protect the brand and maintain franchise system standards. Turnover reporting, access to point-of-sale and accounting data, mystery shopping, quality audits and announced and, within limits, unannounced inspections during business hours are all accepted, as are operational standards for brand presentation, product range, suppliers, IT and staff qualifications. Four limits apply. Under German law on general terms and conditions, the rights must be definite, proportionate and transparent, meaning that unlimited rights to change the manual, obligations to make unspecified investments and the wholesale transfer of audit costs to the franchisee are risky. A clause permitting changes to the franchise system should be limited by materiality and coupled with notice where significant investment is required. Under competition law, controls may not be used to fix prices, to prevent permitted online or passive sales, or to extract competitively sensitive data in dual distribution. Under data protection law, audits involving personal data and access to employee data require a legal basis (see Question 21). Finally, the more the controls operate as personal instructions rather than objective franchise system standards, the greater the status risk described under Question 15.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no statutory right to renewal. Renewal is a matter of agreement: a fixed-term franchise agreement simply expires, and the franchisor may, in principle, refuse without giving reasons. Options conditional on compliance, refurbishment, retraining and acceptance of the current franchise agreement are enforceable. Two qualifications apply. Firstly, good faith protects investments made at the franchisor&#8217;s instigation shortly before expiry. Therefore, a refusal without good reason after the franchisor has encouraged such investment may give rise to damages. Secondly, where franchisees are dependent on a dominant or relatively strong franchisor, an arbitrary refusal may be scrutinised under competition law. No disclosure obligations arise on renewal beyond the continuing duty described under Question 5. There is no statutory compensation for non-renewal or termination as such, The exceptions are the goodwill indemnity by analogy to Section 89b HGB, provided the conditions described under Question 16 are met. This is assessed based on the margins earned from new and intensified customers, reduced for equity considerations and capped at the average annual remuneration of the last five years, subject to a one-year limitation period and reasonable compensation for a post-term non-compete obligation (see Question 27).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?  Are there any requirements regarding notice periods and opportunities to remedy breaches before termination?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. Either party may terminate the franchise agreement for good cause (Section 314 BGB), and neither that right nor its requirements can be excluded or materially curtailed by standard terms. Good cause exists where, when weighing all circumstances and the interests of both parties, the terminating party cannot reasonably be expected to continue until the agreed end date or the end of a notice period. Only serious breaches qualify, as termination for cause is a measure of last resort. Payment default or breach of individual provisions will not necessarily justify ending a long-standing relationship, whereas a persistent refusal to pay fees or repeated breach of essential franchise system rules will. Prior warning or an unsuccessful grace period is generally required and is likewise non-waivable, and termination must be declared within a reasonable period after the cause becomes known. A fixed-term franchise agreement otherwise ends upon expiry, with ordinary termination only if expressly agreed. In the case of an indefinite term, the statutory notice periods of commercial agency law apply by analogy: one month in the first year, two in the second, three in the third to fifth years and six thereafter, effective at the end of a calendar month. While longer periods may be agreed, the statutory periods may not be shortened.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any intangible assets in the franchisee's business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The allocation follows the licence. The trademarks, know-how, manuals, software and other franchise system intellectual property remain with the franchisor. The licence ends with the franchise agreement and brand goodwill accrues to the franchise system rather than to the individual outlet. Local goodwill is not an asset the franchisee can claim. If it is monetised at all, this is done through the goodwill indemnity (see Questions 16 and 24), which is a monetary claim and not a proprietary right. Customer data is the most contentious item: where the franchisee collected this in its own name as controller it does not lose it upon termination. Any obligation to transfer the data must have a lawful basis and generally triggers the indemnity analogy. If the data was collected centrally, the franchisee cannot claim it. Local domain names, social media accounts and directory listings are frequently registered by the franchisee, and an obligation to transfer or delete them is enforceable if expressly agreed, which it should be. Improvements made by the franchisee belong to it unless otherwise agreed. Its own lease, equipment, staff and books also remain its own.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What post-termination obligations are typically enforceable (e.g. de-branding, return of confidential information, non-compete, non-solicitation) and how readily are such post-term restrictions enforced in practice?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>De-branding is typically enforced: the franchisee must cease all use of the trademarks and franchise system signs, remove signage and livery, hand over or destroy branded materials, transfer or deactivate domains and social media accounts and cease presenting itself as a member of the franchise system. These obligations are supported by trademark law as well as by contract. The return or deletion of the manual, franchise system data and confidential information is likewise enforceable, as is the prohibition on using or disclosing know-how that has not entered the public domain, which may be imposed without time limit. Post-term non-compete obligations are more constrained: they are exempt only for up to one year, are limited to competing goods or services and to the premises from which the franchisee operated, and are only permitted where indispensable for protecting know-how. They must also comply with German law on general terms and conditions. The franchisee may claim reasonable compensation for the period of restraint, so a restraint agreement without compensation is risky. Enforcement is effective: injunctions, including interim injunctions granted within days or weeks, are backed by coercive penalty payments. Overly broad restraints, by contrast, fail entirely, so narrow and properly compensated drafting is crucial.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a national franchising association? Is membership required?  If not, is membership commercially advisable? What are the additional obligations of the national franchising association?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The national association is the German Franchise Association (<em>Deutscher Franchiseverband<\/em>, GFA), which was founded in 1978 and is a member of the European Franchise Federation. While membership is voluntary and carries no legal consequences, it is commercially advisable, particularly for franchisors new to the market. Admission as a full member requires passing a quality review, which signals to candidates, banks and landlords that the franchise system has been externally examined. The association also provides statistics, model documentation, training and mediation services. The additional obligations are self-regulatory. Members must comply with the code of ethics, which requires a concept that has been operated successfully with at least one pilot operation, ownership or lawful use of the franchise system&#8217;s signs and the provision of initial training and ongoing support throughout the term. They are also expected to follow the association\u2019s guideline on pre-contractual disclosure. Although not binding, these standards are recognised in part by the courts and used as a benchmark in disputes, so franchisors should treat them as market practice even if they do not join.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are foreign franchisors treated differently to domestic franchisors? Does national law\/regulation impose any debt\/equity restrictions?  Are there any restrictions on the capital structure of a company incorporated in your country with a foreign parent (thin capitalisation rules)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Foreign franchisors are not treated differently, no distinction is drawn between EU and non-EU franchisors, and no approval is required to enter the market or to grant master franchise or development rights. Foreign investment screening applies only to the acquisition of voting rights in German undertakings and is not triggered by the granting of a franchise. There are no exchange controls or debt-equity ratio requirements under company law. A GmbH needs share capital of EUR 25,000, but there is no obligation to fund a subsidiary with any particular proportion of equity. However, in the event of insolvency, shareholder loans and economically equivalent claims rank behind other creditors and repayments made in the preceding year may be clawed back. The remaining constraints are fiscal rather than corporate. Under the interest barrier, net interest expenses are deductible only up to a certain percentage of tax EBITDA, subject to a de minimis threshold and escape clauses, any excess is carried forward. This rule applies to third-party as well as shareholder debt, so a German subsidiary funded predominantly by debt may lose part of its interest deductions. Related-party financing and royalties must be at arm\u2019s length and documented, and the deduction of royalties may be restricted where the income is subject to preferential low taxation in the recipient\u2019s hands. Large international groups may also be subject to global minimum tax. The German funding and fee structure should therefore be modelled on tax advice rather than against any franchise-specific restriction.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement be governed by local law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>No. The parties may choose the governing law of the franchise agreement (Article 3 of Regulation (EC) No 593\/2008, Rome I). In the absence of a choice, it is governed by the law of the country in which the franchisee has its habitual residence (Article 4(1)(e) Rome I), so German law would apply to a franchise agreement with a German franchisee. A choice of foreign law is subject to limitations: overriding mandatory provisions of German law, in particular competition law continue to apply where a German court or tribunal has jurisdiction; a foreign provision may be refused application on public policy grounds; the franchise system\u2019s trademarks are governed by the law of the country where they are protected; and it is unclear whether the goodwill indemnity, which cannot be waived in advance, is to be treated as mandatory in franchising. Where all other elements of the situation are in Germany, the choice of law does not displace German provisions that cannot be derogated from, which matters in sub-franchise structures with a German master franchisee. In practice, German law is chosen for purely German networks, whereas in international franchise systems, the master franchise agreement is frequently governed by the franchisor\u2019s home law and the German sub-franchise agreements by German law.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What dispute resolution procedures are available to franchisors and franchisees?  Are there any advantages to out of court procedures such as arbitration versus litigation, in particular if the franchise agreement is subject to a foreign governing law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Litigation, arbitration and mediation are all available. Franchise disputes are heard by the ordinary civil courts within a single unified system. Proceedings involve written pleadings followed by an oral hearing and costs follow the \u201closer pays\u201d principle under statutory tariffs. Jurisdiction agreements between businesses are recognised, and interim injunctive relief is available quickly, which is a significant advantage in brand protection and post-term restraint cases. Several German states now operate Commercial Courts that can hear higher-value commercial disputes in English, removing one of the traditional drawbacks of litigating in Germany. Judgments of other EU Member States are enforceable here without a declaration of enforceability, whereas judgments from third states require an enforcement action in which the court examines their finality and the grounds for refusing recognition, rather than the merits. Conversely, a German judgment is readily enforceable across the EU, but may require exequatur proceedings outside it.<\/p>\n<p>Arbitration is fully recognised and is the usual choice in international franchise systems. Germany has been a party to the New York Convention since 1961, so awards are readily enforced in Convention states. Arbitration offers flexibility as to the number of arbitrators, the location and the language, as well as confidentiality and the appointment of arbitrators with franchise expertise. However, it can be disproportionately expensive in low-value disputes. There is also no appeal process for unfavourable awards and an award must first be declared enforceable by a state court, although interim relief remains available from the courts in support of arbitration. Where foreign law applies, arbitration is usually preferable as the tribunal can apply that law directly, whereas a German court would require expert evidence and translations.<\/p>\n<p>Mediation is increasingly used and multi-tier clauses are common. The GFA also offers conciliation and arbitration.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement and disclosure documents be in the local language?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In principle, German law does not require the pre-contractual information or the franchise agreement to be in German, but there are strong reasons to provide it. Standard terms must be clear and intelligible, and ambiguities are construed against the party that drafted them, so a clause the franchisee cannot understand because of the language may be void under German law on general terms and conditions. The franchisee may also argue that it did not understand the information supplied, which weakens the franchisor&#8217;s position on disclosure. The language of German court proceedings is German, so litigation before the ordinary courts requires certified translations of the franchise agreement and all documents relied on, incurring corresponding costs and delays, unless the matter is heard in English by a Commercial Court (see Question 31). Market practice is therefore to execute a German or bilingual version with a clear provision on which language prevails, and at a minimum to supply a German translation of the franchise agreement and the disclosure package.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>No particular form is prescribed for a franchise agreement, which could in principle be concluded orally. Electronic signature is therefore possible, and simple, advanced and qualified electronic signatures are all legally effective. Nevertheless, specific form requirements arise. Where the franchisee is an individual establishing an independent business and the franchise agreement obliges it to accept repeated deliveries, the franchise agreement must be concluded in writing and the prescribed withdrawal instruction must be given. A post-term non-compete obligation requires written form, as well as delivery to the franchisee of a document signed by the franchisor; otherwise, it is unenforceable. A personal guarantee from the franchisee\u2019s director or principal shareholder, which is market practice, requires written form; electronic form is expressly excluded unless the guarantor is acting as a merchant. Guarantees should therefore be signed in wet ink. The decisive consideration is otherwise evidential: only a qualified electronic signature ensures the statutory evidentiary value and presumption of authenticity. A qualified signature or a wet-ink original is therefore recommended for the franchise agreement, the acknowledgement of disclosure and any guarantee.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Do you foresee any significant commercial or legal developments that might impact on franchise relationships over the next year or so?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>No franchise-specific legislation is pending. Commercially, cost pressure dominates. Digitalisation is another dominant theme. The AI Act has applied in large part since 2 August 2026, including the transparency and labelling obligations under Article 50. Customers must be informed when they interact with an AI system, such as a chatbot, and AI-generated content must be labelled as such. Depending on how a tool is developed, branded and used, either party may be the provider or deployer or one party may fulfil both roles. The allocation therefore requires a case-by-case assessment. Compliance obligations originating outside of franchise law also continue to expand, including supply chain and sustainability due diligence, product, packaging and environmental claims requirements, and internal reporting channels.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">8060<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/151532","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=151532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}