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A Guide to Franchising in the Nations of East and Central Europe

East & Central Europe: Country Overviews
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The flag of Czech RepublicCzech Republic

Capital City: Prague
Population (Millions): 10

ECONOMIC OVERVIEW

GDP Per Capita: US$ 24,900
GDP per Sector:
Agriculture - 2.3%
Industry - 37.2%
Services - 60.5%
Currency: Czech koruna (CZK)
Ex.Rates: koruny (CZK) per US dollar - 19.373
Big Cities (>100,000): Brno, Ostrava, Plzeň, Liberec, Olomouc
Urban Population: 0.73
Languages: Czech 94.9%, Slovak 2%, other 2.3%, unidentified 0.8%

Background:

Following the First World War, the closely related Czechs and Slovaks of the former Austro-Hungarian Empire merged to form Czechoslovakia. During the interwar years, the new country's leaders were frequently preoccupied with meeting the demands of other ethnic minorities within the republic, most notably the Sudeten Germans and the Ruthenians (Ukrainians). After World War II, a truncated Czechoslovakia fell within the Soviet sphere of influence. In 1968, an invasion by Warsaw Pact troops ended the efforts of the country's leaders to liberalize Communist party rule and create "socialism with a human face." Anti-Soviet demonstrations the following year ushered in a period of harsh repression. With the collapse of Soviet authority in 1989, Czechoslovakia regained its freedom through a peaceful "Velvet Revolution." On 1 January 1993, the country underwent a "velvet divorce" into its two national components, the Czech Republic and Slovakia. The Czech Republic joined NATO in 1999 and the European Union in 2004.

National Franchise Association

Czech Franchise Association

Czech Franchise Association
Mr. Ivo Lamich
caf@czech-franchise.cz



LEGAL OVERVIEW

The Czech Republic has been currently experiencing a franchising boom. Many well established foreign franchising concepts are being introduced to the Czech market, and also Czech entrepreneurs are building new and genuinely Czech concepts of their own. Nowadays more than 100 franchise brands can be counted in the Czech Republic. After the Czech republic entered the European Union the number of franchise systems continued to grow, together with the expansion of foreign (mostly western European) investors. Following the Czech Republic’s accession to the European Union, Czech law was harmonized with and now is fully consistent with European Union law.

In 1993, a non-profit professional organisation was established in the Czech Republic, to bring franchisors and experts on franchising matters together on a national level –the Czech Franchise Association (Ceska asociace franchisingu). The Association supports the development of existing franchising systems and the creation of more favourable conditions for the expansion of this type of business, and since its foundation has been playing an increasingly important role. The objectives of the Czech Franchise Association are: to inform the public: to provide advice and support to its members when conducting their activities, including representation before Czech authorities: to influence the Czech legislature in order to obtain clear legal and tax framework conditions, and to closely cooperate with other associations, especially other European franchise associations. In 2005, the Association became a member of the European Franchise Association (EFF).

The Czech Republic, as in many other European countries, lacks legal regulation which specifically applies to franchising. However, while there are no provisions of the Czech laws that regulate franchising, there are no provisions that prevent or hinder development, of franchising, either.

Before entering into a franchising agreement, a franchisor should provide the franchisee with complete and trustworthy information about the franchising concept in question.

In many European countries, as for instance in neighbouring Germany, court practice has established the franchisor’s duty to provide information before entering into a franchise agreement. However, this issue has neither been dealt with by Czech courts, nor is it mentioned in legal regulations. In general, only the principle of good will, deduced from the principle of good morals and the principle of fair business conduct, can be taken as a basis for providing franchisee in the Czech Republic with full information.

A franchise agreement itself is a so-called “unspecified type of contract” (in Czech: “innominatni smlouva“) according to the Czech Commercial Code, which can contain elements of different types of contract, such as a license agreement, an agreement for the provision of know-how, a rental or leasing contract, a commercial agency agreement, a contract of sale (under which goods are supplied) or a contract for the provision of services.

Apart from the general provisions of the Czech Commercial Code and the Czech Civil Code, the provisions of the Czech Act on the Protection of Economic Competition and the Trademarks Act are important for franchising.

In many cases, a franchise agreement will focus on the transfer of know-how. However, according to common definitions, this is not an essential pre-condition of a franchising agreement. The Higher Court of Prague has defined franchising as a “long-term vertical agreement with equal rights and obligations for both contracting parties who face one another as independent businessmen each bearing their own entrepreneurial risks: the right of the franchisee to use the rights granted vis-a-vis the franchisor’s right to claim a non-recurrent fee for granting the license as well as regular fees (share in the turnover/profit).” According to this definition, the transfer of know-how not an essential term of a franchise agreement. Rather, rights of any kind can form the subject matter of the agreement.

No national register for franchise agreements exists in the Czech Republic. According to the Czech Commercial Code and the Czech Trademarks Act, however, trademark licensing agreements become effective vis-a-vis third parties only upon their registration, although they are effective between the contractual parties upon entering into the agreement. The competent authority for such registration is the Industrial Property Office in Prague. Registration is made on request and does not require an examination.

Noerr is an international partnership of attorneys, tax advisors and auditors.
Barbara Kusak
tel +420 233 112 142
Na Porнcн 1079/3a
CZ-11000 Praha 1
Czech Republic

 

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