Updated on 06/17/2026
Franchising out a proven business and buying into an established franchise are opposite paths on the same road — and both demand solid legal structuring before any signature.
TL;DR
- The Brazilian Franchise Law (“Lei de Franchising,” Law 13.966/2019) is the legal framework governing every franchisor-franchisee relationship in Brazil.
- The COF (“Circular de Oferta de Franquia” — Franchise Disclosure Circular) is mandatory and must be delivered to the prospective franchisee 10 days before signing the contract or making any payment.
- A franchisable business isn’t just one that turns a profit — it’s one with documented processes, a registered trademark, and a replicable model.
- Due diligence before buying a franchise goes beyond reading the COF: it involves checking litigation history, the network’s financial health, and talking to former franchisees.
- The franchise agreement needs periodic review — the network grows, the market changes, and clauses become outdated.
Table of Contents
- The case: a restaurant ready to grow
- Is my business franchisable? A legal checklist
- The COF in practice: what it must contain and the most common mistakes
- Due diligence before buying: what to check
- When the franchise agreement needs to be revised
- Talk to a lawyer
- FAQs
The case: a restaurant ready to grow
A healthy-food chain with four company-owned units in operation, a consolidated average ticket, and a brand with regional recognition. The partners received three informal proposals from parties interested in opening units under the brand — and responded to all of them with a “let’s formalize this.” The problem: there was no COF, no standard franchise agreement, and the trademark was registered with the Brazilian Patent and Trademark Office (INPI — Instituto Nacional da Propriedade Industrial) in only one of the relevant classes.
Without these elements, any amount received from prospective franchisees would constitute an irregular practice under Law 13.966/2019. The structuring process took four months: consolidating the operations manual, registering the trademark in the correct classes, and drafting the COF and the franchise agreement. Over the following twelve months, the chain opened six franchised units based on the same legal model, with no need for contractual rework during that period.
This example illustrates what happens when franchising out starts with the right contract.
Is my business franchisable? A legal checklist
Having satisfied customers and positive cash flow isn’t enough. The legal replicability of a business depends on five pillars:
1. A registered trademark (or one well into the registration process)
The trademark needs to be registered with INPI in the class(es) corresponding to the product or service. Franchising out a trademark without registration transfers to the franchisee a risk they cannot manage — and, if a third party challenges it, the entire network is exposed.
Point of attention: the INPI registration process takes an average of 18 to 36 months. Plan ahead, not after the fact.
2. A documented business model
The know-how needs to be captured in a detailed operations manual — processes, service standards, suppliers, training, performance indicators. Without this, the promise of know-how transfer that legally underpins franchising simply doesn’t exist.
3. A pilot unit with a proven track record
Law 13.966/2019 doesn’t formally require a pilot unit, but the COF must disclose real financial data. A pilot unit operating for at least 12 months is the minimum needed to support the projections that prospective franchisees will evaluate.
4. An organized corporate structure
Who is the franchisor? The partners as individuals, or the company itself? This needs to be clearly defined before the COF is issued — and the franchise agreement is executed with the legally constituted franchisor entity, not with individuals.
5. Capacity to support the network
Franchising out isn’t just selling units — it’s sustaining parallel operations. The franchisor takes on obligations to train, support, and enforce standards. Insufficient back-office structure breaks networks before their third year.
The COF in practice: what it must contain and the most common mistakes
The COF (“Circular de Oferta de Franquia,” or Franchise Disclosure Circular) is the mandatory disclosure document required under Law 13.966/2019. It is not a marketing piece — it’s a legal transparency instrument.
What Law 13.966/2019 requires in the COF
The law lists 23 mandatory items. The main ones:
| Item | What it must include |
|---|---|
| Franchisor’s history | Founding, partners, CNPJs (company tax IDs) involved, network’s evolution |
| Legal standing | Active and closed litigation involving the franchise model over the past 5 years |
| Financial data | Balance sheets for the past 3 years (when the franchisor is required to publish them) |
| Estimated investment | Fees (franchise fee, royalties, marketing fund), estimated total investment, and payback period |
| List of franchisees | Name and contact information of all active franchisees and those who left in the past 12 months |
| Term and renewal | Contract duration, renewal conditions, and termination conditions |
The most common mistakes in the COF
Mistake 1 — A generic COF, updated by copy-paste. Franchisors who copy ready-made templates without adapting them to their own business deliver a document that doesn’t reflect the network’s reality. In a dispute, this works against the franchisor.
Mistake 2 — Failure to respect the delivery deadline. The COF must be delivered 10 days before signing any contract or making any payment. Contracts signed without observing this deadline are voidable.
Mistake 3 — Financial projections without factual basis. Including revenue projections without grounding them in real data — or without proper disclaimers that they are estimates — exposes the franchisor to claims of misleading information.
Mistake 4 — Incomplete list of former franchisees. Omitting recent departures from the network is one of the most serious irregularities. Candidates have the right to contact former franchisees — and that contact can reveal patterns of problems that the official COF doesn’t disclose.
Due diligence before buying: what to check
Buying a franchise is an investment that combines financial capital with time capital. Due diligence reduces the risk of surprises that the COF, on its own, doesn’t eliminate.
Step 1 — Read the COF with a technical eye
Analyze the litigation history. Check for patterns: lawsuits over early termination, improper royalty charges, disputes over exclusive territory. A franchisor with a significant history of lawsuits from former franchisees deserves special attention.
Step 2 — Talk to active franchisees and former franchisees
The list is in the COF — use it. The most revealing questions:
- Is the support promised in the COF the support actually delivered in practice?
- Were there significant changes to royalties or network rules after signing?
- Did the franchisor meet the contract renewal deadline?
- Why did you leave the network? (for former franchisees)
Step 3 — Check the trademark’s legal status
Check with INPI to confirm that the trademark is registered in the correct classes and free of pending challenges. A franchise built on a disputed trademark is a structural risk — the franchisee could lose the right to use it midway through the contract.
Step 4 — Analyze the franchise agreement in detail
The most sensitive points:
- Territorial exclusivity: does it exist? Is it absolute or relative? Can the franchisor open an online sales channel that competes with the franchisee?
- Termination: what grounds allow the franchisor to terminate without compensation? Are they objective, or overly subjective?
- Renewal: does the contract guarantee renewal for a franchisee who has met all obligations, or is renewal discretionary?
- Goodwill: is the franchisee entitled to any compensation for the goodwill built up over the course of the operation, in case of non-renewal?
Step 5 — Check the franchisor’s financial health
A franchisor in financial trouble undermines the support structure that justifies paying royalties. Request the balance sheets referenced in the COF and, whenever possible, check for protested debts and bankruptcy or judicial reorganization filings.
When the franchise agreement needs to be revised
The franchise agreement isn’t a document to file away and forget. Three situations call for proactive review:
1. Significant network expansion
When the network grows from 5 to 20 units, the support clauses, enforcement mechanisms, and criteria for approving new franchisees need to be reassessed. What was reasonable for a small network may be unworkable — or insufficient — for a larger one.
2. A significant change in the business model
A new sales channel (proprietary e-commerce, marketplace, dark kitchen), a change of exclusive supplier, a shift in territorial policy — any structural change to the business that affects the franchisee needs to be documented through a contract amendment. Failing to document it creates ambiguity that fuels disputes.
3. Contract renewal
The renewal moment is the natural opportunity to rebalance obligations, update financial projections, and incorporate regulatory changes. Renewing automatically, without review, means carrying outdated clauses for another five or ten years.
Warning sign: if the standard franchise agreement was last revised more than three years ago, there’s a good chance it no longer reflects the network’s current operation.
Talk to a lawyer
Franchising involves decisions with long-term effects — both for those franchising out a business and for those investing in a franchise. If you’re considering structuring a network, acquiring a unit, or reviewing existing contracts, a technical analysis of your specific scenario is the safest starting point.
FAQs
Can I start selling franchises before registering the COF with the commercial registry?
No. Delivering the COF to the prospective franchisee is mandatory before any contract or payment, but Law 13.966/2019 does not require the COF to be registered with the commercial registry (junta comercial) for it to be valid. What the law requires is that the COF be delivered to the candidate at least 10 days before signing the contract or receiving any payment — and that the document contain all 23 items required by law. Starting negotiations or accepting reservations without having delivered the COF constitutes an irregular practice and may result in the contracts entered into being voided. If you’re structuring a franchise network, the COF needs to be ready — and legally reviewed — before the first commercial contact with candidates.
Is territorial exclusivity mandatory in a franchise agreement?
It isn’t required by law, but it needs to be expressly defined in the contract. Law 13.966/2019 requires the COF to disclose whether territorial exclusivity exists and, if so, what its limits are. What creates legal problems isn’t the absence of exclusivity, but the absence of clarity: contracts that use vague terms like “region” or “area of influence” without objective boundaries are a frequent source of disputes between franchisor and franchisee. Before signing, check whether the contract defines: (a) whether exclusivity exists; (b) its precise geographic limits; (c) whether the franchisor can operate a digital channel that reaches the franchisee’s territory; and (d) the consequences of a breach of exclusivity.
Is the franchisee entitled to compensation if the contract isn’t renewed?
It depends on what the contract says and the circumstances of the non-renewal. Law 13.966/2019 doesn’t automatically guarantee the franchisee compensation for goodwill upon termination of the contract — unlike what happens in agency and commercial representation agreements. This means that, absent a specific contractual clause, a franchisee who fulfilled all obligations during the contract term may have no right to compensation for the goodwill built up. Poorly drafted contracts tend to favor the franchisor on this point. That’s why, before signing, it’s essential to check whether the contract provides for: objective conditions for non-renewal, any compensation for goodwill, and a notice period for the other party. This is general information and does not replace consulting a lawyer for an analysis of your specific case.
This is general information and does not replace consulting a lawyer for an analysis of your specific case.
Alessandra De Paula Souza — OAB/PR 31.133 Practice focused on franchising, network structuring, and business contracts.