Franchising is a widely used business model around the world, allowing companies to expand through the transfer of brand, know-how, and operational systems. In Ukraine, this relationship is formally regulated as a commercial concession agreement (dohovir komertsiynoyi kontsesiyi). The main legislative acts governing it are the Civil Code of Ukraine (Chapter 76, Articles 1115–1129) and the Commercial Code of Ukraine (Article 67, which falls under Chapter 36).
Under a commercial concession agreement one party (the right holder) undertakes to grant to the other party (the user), for a fee, the right to use a complex of rights belonging to the right holder, in accordance with specified requirements, for the production and/or sale of certain goods or the provision of services.
It is important for foreign businesses to note that Ukrainian legal terminology differs from international practice: the franchisor is referred to as the “right holder,” while the franchisee is called the “user.”
Trademark Registration and Legal Qualification
From a practical perspective, entering into a commercial concession agreement is only possible once the relevant trademark has been registered in Ukraine or at least has successfully passed the examination stage. Attempting to structure franchise relations through other types of agreements, such as license agreements, will not qualify as franchising under Ukrainian law and may lead to legal and tax risks.
Scope of Rights and Business Model
A commercial concession agreement typically involves the transfer of intellectual property rights, including trademarks, industrial designs, inventions, copyrighted works, and trade secrets, as well as commercial experience and business reputation. In essence, the user receives not just a brand, but a ready-to-operate business model that has already proven its effectiveness.Both individuals and legal entities engaged in entrepreneurial activity may act as parties to such an agreement. This allows foreign companies to cooperate with local partners without necessarily establishing a separate legal entity in Ukraine, although the specific structure will depend on the business model.
Formal Requirements of the Agreement
In Ukraine a commercial concession agreement must be concluded in written form as a single document. Exchange of correspondence or informal arrangements will not be sufficient. Failure to comply with this requirement results in the agreement being deemed invalid, which creates significant risks for both parties.Essential Terms of the Agreement
The content of the agreement largely depends on the industry, the type of business, and the structure of the franchise system. However, several key elements are considered essential.First, the agreement must clearly define the scope of intellectual property rights granted to the user. This includes, in particular, the right to use trademarks, trade names, industrial designs, and other protected objects.
Equally important is the transfer of commercial experience and business reputation. In practice, this includes know-how, which is confidential information owned by the right holder and not subject to state registration, as well as ongoing advisory support, operational documentation, training programs, and marketing assistance.
Another essential element is the remuneration payable to the right holder. This may take various forms, such as a lump-sum entry fee, periodic royalty payments, or a combination of both. Ukrainian law does not impose strict limitations on how these payments are structured, but in practice, they must be clearly defined to avoid disputes and ensure compliance with tax and currency regulations, that have been recently affected by the Martial Law.
Additional Contractual Provisions
In addition to these core elements, the agreement typically regulates a number of practical issues, including the scope of the user’s rights, the parties’ obligations and liability, procedures for amending the agreement, termination conditions, dispute resolution mechanisms, duration, and the territory where the rights may be exercised.Territory and Duration
Special attention should be given to territorial provisions. If the agreement does not specify the territory of operation, Ukrainian law may interpret the user’s rights as extending across the entire territory of Ukraine. For foreign franchisors planning controlled expansion, this can create unintended consequences, such as loss of exclusivity in certain regions.The duration of the agreement is another important aspect. If the agreement does not specify a fixed term, either party has the right to terminate it at any time by giving at least six months’ prior notice, unless a longer period is agreed. From a business perspective, it is usually advisable to define both the term and termination conditions clearly to ensure stability and predictability.