The Franchise Law is a specific legislation that regulates the functioning of the franchising system in Brazil. It establishes the obligations of both franchisors and franchisees, in order to ensure transparency in the commercial relationship.

In this way, it is essential for Brazilians to have more and more confidence in the business model that is dominating the market. 

The adhesion contract for the installation of new units in a franchise network is determined by this law. Similar to US legislation, which is based on the principles of good faith, good habits and the duty to inform, the Franchise Law seeks to promote a better commercial relationship between the parties involved. 

The legislation covers issues such as the risks involved, forms of support and transmission of know-how, in addition to other obligations related to the installation and operation of the business. 

With just 11 articles, the law is concise but fundamental.

The last update took place in March 2020 and brought new articles that clarify points of paramount importance, seeking to maintain the legal security of both parties. 

Check out the most important points below.

Obligation of the Franchise Offer Circular (COF): Understand why it is essential

Now, the COF became a mandatory document that the franchisor must provide to the potential franchisee before signing the contract. 

This circular contains crucial information about the franchise, such as company history, financial obligations, franchisor data, business description, support offered, among others. 

Thus, the inclusion of this requirement in the law aims to ensure that the franchisee has access to all the information necessary to make an informed decision about whether or not to invest in the franchise. 

In summary, this measure promotes transparency and protects the interests of the franchisee.

Reinforcement in the transmission of know-how: The sharing of strategic and operational knowledge 

On the other hand, the new law emphasizes the importance of transmitting know-how from the franchisor to the franchisee. The know-how encompasses specific knowledge and techniques that contribute to the success of the business.

This knowledge transfer takes place through training, operational manuals and continuous support offered by the franchisor. 

With the update of the law, the obligation to provide this know-how is reinforced, which contributes to the standardization and success of the franchising system.

Competition: Avoiding Abusive Restrictions and Fostering Free Markets

The new legislation also clarifies the competitive relationship between franchisors and franchisees. It aims to avoid abusive restrictions imposed by the franchisor that could harm free competition. 

In this way, the measure protects the franchisee from practices that may limit its growth potential and fosters a healthy environment for business development.

Employment Relationship: Benefits of the New Franchising Law

The working relationship between the franchisor, the franchisee and the franchisee's employees is a fundamental aspect of the franchising system. So, the new franchise law clearly establishes that there is no employment relationship in these relationships, even during the training period carried out by the franchisor.

This determination brings legal security to the sector, making it clear that labor rules and the Consumer Protection Code do not apply to franchise relationships. This interpretation previously existed, but is now consolidated in the legal text in force.

In addition, by recognizing the absence of an employment relationship, the new franchise law allows the franchisor and franchisee to focus on their contractual obligations, promoting a more agile and efficient business environment. 

Commercial point and sublease in the new Franchise Law 

Finally, a significant change in the law is in relation to the lease of the commercial point where the franchise will be established. Now, the franchisor is allowed to lease this space, making the franchisee the sublessor. This modification represents an important change, since this practice was previously considered a criminal misdemeanor.

With this change, if the franchisee decides to end the contract, the commercial point will remain in the possession of the original lessor, that is, the franchisor. The rent payment may be made by both the lessor and the sublessor, depending on the conditions established in the contract.

At the same time, the new law establishes that there cannot be excessive onerousness, ensuring that the rent value is fair and balanced. In addition, it is necessary to preserve the economic balance based on the contract, since the property will be sublet for the exploitation of the franchise.

In this way, the franchisor has greater control over the commercial points of the franchises, ensuring more efficient management. The franchisee, on the other hand, can count on the security that, when the contract ends, the point of sale will not be lost, facilitating the transition to new ventures.

With Linkages, both franchisor and franchisee make better decisions 

At Linkages, we idealize specific mappings that help both the franchisor and the franchisee in the different stages of decision-making. 

Thus, the right choice of the commercial point, the mapping of competitors and the prevention of the cannibalization of the units are subjects approached in a serious way, based on data and gathered in reports that are easy to interpret. 

Do you want to know more about how our data can turn into valuable insights for your business? Schedule a meeting with us.