Start a Franchise Business in Estonia

Franchising represents the right to utilize the business model or brand of an already established company for a certain time frame. For the franchisor, the franchise represents an alternative to making chain stores to distribute products which does not require investing and the liability of a chain. The franchisee has a greater motivation to succeed than a direct employee, since he or she has a direct stake in the business. In this article, our Estonian company formation consultants cover a few important aspects related to starting a franchise in Estonia.

Franchising in Estonia

Franchising in Estonia is effectuated under the concept of vertical restraint. The types of vertical restraints, except for exclusive supply and non-competition commitment, are not definite in the antitrust legislation in the country.

This concept is based on the EU regulations. When it comes to franchising in Estonia, under a franchise agreement, one party enables the other one to exploit the franchisor’s trademarks and expertise for sale and distribution of services or products.

The legal sources which outline the antitrust law applicable to vertical restraints in Estonia are:

• • The Competition Act;
• • The Penal Code, Division 7;
• • The Government of Republic Regulations No. 195 of 18 June 2002;
• • The Government of Republic Regulation No. 130 of 26 April 2004.

Our company formation advisors in Estonia can provide further details on these laws. We also offer assistance to open an Estonian company.

The Law of Obligations Act in Estonia

Franchise agreements in Estonia are concluded according to the Law of Obligations Act.

According to this act, a contract can be entered by an offer which is made and accepted or by the mutual exchange of declarations of intent in any other form if it is clear enough that both parties have reached an agreement.

After accepting an offer, the contract is concluded when the acceptance reaches the party which is the offeror.

In case certain terms have to be agreed upon after the agreement of the parties or at the request of one of the parties, the contract will not be concluded until these terms have been reached, unless specified by the law.

Our company registration specialists in Estonia can offer all the necessary details on the Law of Obligations Act.

The franchisor and the franchisee in Estonia

According to the Law of Obligations, there are two parties which can enter into a franchise agreement: the party offering the business model, which the franchisor, and the party taking the business model and developing a company based on it, namely the franchisee.

In order to set up a franchise in Estonia, the two parties need to enter a contract, called a franchise agreement. This document will establish the conditions, the rights, and the obligations of the franchisor and the franchisee.

If you want to open a company in Estonia under the form of a franchise business, our local consultants are at your disposal with detailed information.

The franchise agreement in Estonia

The franchise agreement is the main document which stands at the base of opening a franchise in Estonia. Considering it will be a regular contract under the Law of Obligations, the franchise agreement must contain the following:

• - information about the franchisor and the franchisee who in Estonia are usually legal entities;
• - information about the business model to be taken by the franchisee (the object of the contract);
• - the rights of the franchisor over the business model, the trademark and know-how of the company;
• - the rights of the franchisee who will be entitled to using the business model for a limited period of time and in certain regions (where applicable);
• - the obligations of the franchisor towards the franchisee and the other way around;
• - other information which is relevant to the franchise agreement (conditions imposed by the franchisor).

Even if there are no recommendations on the form of the franchise agreement, the document will usually take a written form.

Before establishing a franchise business, it is best for local and foreign entrepreneurs to open an Estonian company which offers limited liability to the owners. We can assist foreign investors who want to set up any type of business in this country, including franchises of local and overseas companies.

Registering a company for starting an Estonian franchise business

Those who want to open franchises in Estonia are advised to first register a company with the Companies Registrar. The structure to be used can be the sole proprietorship or the limited liability company (LLC), although the LLC is preferred by foreign businesspersons.

Once the company is registered, the franchise agreement can be signed by the parties.

If you are interested in creating a franchise in Estonia, our local consultants can help you right from the beginning. This means we can help you register a business and then prepare the franchise agreement.

Rights and obligations in a franchise in Estonia

As mentioned above, when starting a franchise in Estonia, the agreement will contain provisions on the rights and obligations of both the franchisor and the franchisee.

The franchisor will have the following rights and obligations towards the franchisor:

1. the franchisor has the right to decide whom to enter a franchise agreement with;
2. the franchisor has the right to verify if the franchisee respects the conditions of the agreement;
3. the franchisor ha the right towards a fixed or variable amount of money derived from the profits of the franchisee;
4. the franchisor has the obligation of providing the franchisee with all the materials related to completing the activities of the business model;
5. the franchisor has the obligation of offering the necessary training and support to the franchisee;
6. the franchisor has the obligation of permanent assistance to the franchise during the period of the franchise agreement.

In return, the franchisee has the right to obtain profits from the franchise and the benefit from the intellectual property rights offered by the business model employed. However, the franchisee has the obligation of respecting the conditions imposed by the franchisor. The franchisee also has the obligation to use the identification of the franchisor and to provide the exact products or services offered by the franchisor. The franchisee will follow the precise instructions imposed by the franchisor when opening the Estonian franchise.

If you are interested in starting a business in Estonia, including as a franchise, the local economy:

• - at the end of the first quarter of 2019, it registered a 4.5% increase;
• - the economy is expected to increase by 2.8% by the end of 2019;
• - the country’s Gross Domestic Product is expected to grow by 2.4% in 2020;
• - in 2019 and 2020, the unemployment rate in Estonia is expected to decrease by 5.7%.

For further information about starting a franchise business in Estonia, please speak to our friendly company formation agents in Estonia.