What is a franchise agreement?

It is a long-term obligation relationship under which independent enterprises, by performing specific obligations, facilitate the production, sale and servicing of goods.

What form does a franchise contract require?

The contract requires written form for validity, and its text must also include a complete description of the franchising system.

How long may a competition prohibition last after the contract ends?

A prohibition of competition within a defined territory may not exceed one year; if it threatens professional activity, the franchisee must be granted financial compensation.

When can the remuneration be reduced?

Where the franchisor culpably violates a contractual obligation, the franchisee may reduce the remuneration; the amount is determined by an independent expert whose costs are borne by the parties.

Must the franchisee purchase goods through the franchisor?

Yes, where this stands in direct connection with the purpose of the contract — the franchisee must receive services and purchase goods through the franchisor or persons designated by it.

Franchise Agreements in Tbilisi, Georgia

The Concept of the Franchise Agreement

The franchise agreement is a long-term obligation relationship under which independent enterprises mutually undertake, as needed, by performing specific obligations to facilitate the production, sale and carrying out of services of goods. This definition matters for two reasons: first, the relationship is long-term, and its planning therefore takes place over a horizon of years; second, the parties remain independent enterprises — the franchisee does not become a branch or a subsidiary of the franchisor.

This natural reciprocity determines the whole chapter: the franchisor maintains and develops the system, while the franchisee pays remuneration and actively conducts the business. In Georgia this relationship is defined by a separate chapter of the Civil Code, and its norms create the minimal framework which the parties' agreement fills out in greater detail.

The Parties' Obligations

The franchisor is obliged to present to the franchisee, in the form used by it, the non-material property rights, trade marks and merchandise marks, models, packaging, the concept of the organization of production, purchase, sale and business of the goods, as well as other information necessary as an aid to sales. In practice this is the legal basis on which the franchisee receives the full package of the system — including the brand and the know-how.

The franchisor's second direction is the protection and development of the system: it is obliged to protect the unified system of action from the interference of third parties, to develop it uninterruptedly, and to support the franchisee by sharing business skills, supplying information and raising qualifications. These are not merely general words: the non-performance of the franchisor's obligations is directly linked to the possibility of reducing the remuneration.

The franchisee is obliged to pay remuneration whose amount is essentially calculated taking into account the contribution made to the implementation of the franchising system. Besides the remuneration, the franchisee is obliged, with the diligence of a fair entrepreneur, actively to conduct the business, to receive services and to purchase goods through the franchisor or persons designated by it, where this stands in direct connection with the purpose of the contract. The franchisee's activity and loyalty to the system are thus statutory requirements, not merely contractual courtesy.

Franchise Agreements