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?

Franchise & Licensing

Angola Small Flag Angola

There are no limitations to the use of SPVs for operating franchises in Angola nor any specific duties of disclosure in this regard; in our view, this should be covered within the general duty of information mentioned above, which in the case of the franchisee, could be deemed as including specific details of the corporate and business structure which he intends to use for operating the franchises, including any SPVs should that be the case.

In this sense, we advise that if the parties agree to operate the franchises using SPVs, the franchising agreement should include a specific obligation of the franchisees to make such disclosure and specify whether this should take place to every individual SPV franchisee or the SPV parent company only.

Canada Small Flag Canada

Disclosure must be delivered to each separate entity to which a franchise is granted.

Chile Small Flag Chile

Considering no specific local law or regulation addresses franchise disclosure, a conservative approach would suggest that disclosure be made both to SPV’s parent company as well as to each SPV.

Azerbaijan Small Flag Azerbaijan

N/A

Denmark Small Flag Denmark

There are no specific pre-contractual disclosure requirements under Danish law. See question 4.

Egypt Small Flag Egypt

The Egyptian Civil Code does not recognize the idea of affiliates, subsidiaries and sister companies, but rather indicates in Article (53) that each company is completely independent from the other, accordingly, each company having a separate legal entity, is financially independent, and cannot be held accountable for the acts of another company. Therefore, if the disclosure has been made to the franchisee i.e. the parent company, the SPVs will not be considered the recipient of such disclosure.

In light of the above, the franchisor may follow either one of the two following ways:

1- To make the disclosure to the franchisee directly and have the SPVs approve the contract which include the disclosure provision or the disclosure document.

2- To conclude a franchise agreement with each of the SPV including the disclosure provision or attach to the franchise agreement a disclosure document to be executed between the franchisor and each of the SPV being an independent franchisee.

France Small Flag France

For the avoidance of risk, it is recommended to disclose any SPVs in the DIP, and to provide said DIP to the company that is entering into the contract, be it the parent company or the individual franchisee.

Greece Small Flag Greece

There are no specific provisions regarding the above matter. As a general rule, provided that the franchisor makes appropriate disclosure to the SPVs’ parent company, with a clause stating that the latter must make the same disclosure to all entities it controls, there is no further requirement for individual disclosure.

Lebanon Small Flag Lebanon

If the franchisee intends to use a Special Purpose Vehicle to operate each franchised outlet, the disclosure must be made to each individual SPV franchisee since the SPV acts as an independent legal entity even though it is a subsidiary of the parent company.

China Small Flag China

It is required to make disclosure to the franchisee with whom the franchisor is to execute the franchise contract. In case of a framework contract between the SPVs’ parent company and franchisor and separate franchise contract between franchisor and SPVs, it may still be insufficient to make disclosure to the SPVs' parent company only since the parent company and the SPVs are legally separate entities even if they are related.

Mexico Small Flag Mexico

According to article 142 of the IPL, the franchisor must provide the relevant disclosure to whomever it intends to grant the franchise. This means that disclosure shall be made to each company or individual who is willing to enter into a franchise agreement, each time a franchise agreement is entered into.

It is important to clarify that, even though the same company or individual enters into multiple franchise agreement with the same franchisor, disclosure shall be made to the franchisee for each franchise agreement which is executed. Therefore, it will not be enough to make the relevant disclosure to the parent company of the SPV.

Peru Small Flag Peru

See answer 4 above.

Philippines Small Flag Philippines

As there are no disclosure requirements for franchisors in the Philippines, disclosure to the SPV’s parent company would suffice.

Russia Small Flag Russia

Practically, it may be agreed by the parties that disclosure to the SPV’s parent company (master franchisee) will be sufficient for the purpose of franchising. However, if several franchisees or sub-franchisees are contracted eventually, disclosure towards each one in contract is recommended.

United States Small Flag United States

A franchisor is required to disclose all “prospective franchisees” with its franchise disclosure document (“FDD”). The term “prospective franchisee” is defined as “any person (including any agent, representative, or employee) who approaches or is approached by a franchise seller to discuss the possible establishment of a franchise relationship.” Because the Federal Trade Commission (the “FTC”) Franchise Rule (the “FTC Rule”) permits representatives of a prospective franchisee to accept delivery of the FDD on the prospective franchisee’s behalf, a franchisor may properly effect delivery of its FDD to a SPV’s parent company as its representative. In addition, in situations where a franchisee forms separate SPVs to operate multiple outlets, prior disclosure to the actual owner of that SPV (whether an individual or entity) would be sufficient to satisfy the franchisor’s disclosure obligation.

Norway Small Flag Norway

See reply A 4 above. There are no mandatory disclosure requirements. To the extent information is provided regardless of mandatory requirements, the information should at least be referred to as disclosed to the parent company, in relevant contracts with each SPV.

Italy Small Flag Italy

In case the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, then it will be advisable to request the SPV’s parent company to sign a receipt also in name and on behalf of each SPV franchisee.

United Kingdom Small Flag United Kingdom

As there are no specific disclosure requirements in relation to franchising, English law does not restrict or oblige certain types of disclosure.

That said, if a franchisor issued a disclosure document voluntarily, then, provided the SPV is a wholly owned subsidiary of the parent company and there is an overlap of directors and officers, disclosure made to the parent should also constitute disclosure to the SPV.

New Zealand Small Flag New Zealand

It would be sufficient, in my opinion, to make disclosure to the SPV’s parent company.

China Small Flag China

It is required to make disclosure to the franchisee with whom the franchisor is to execute the franchise contract. In case of a framework contract between the SPVs’ parent company and franchisor and separate franchise contract between franchisor and SPVs, it may still be insufficient to make disclosure to the SPVs' parent company only since the parent company and the SPVs are legally separate entities even if they are related.

Updated: October 16, 2019