When scaling a business or entering new markets, companies often face the challenge of choosing the optimal contractual model for cooperation with partners. The most common tools for such expansion are franchising and the White Label model. Both formats make it possible to scale a business relatively quickly without creating one’s own operational infrastructure in each new market; however, they differ significantly in their legal nature.

For this reason, clearly distinguishing between franchising and White Label is of fundamental importance both at the stage of entering new markets and when building a long-term business scaling strategy.

What is a franchise agreement?

1. In Ukraine, franchising relationships are formalized through a commercial concession agreement, which is governed by Chapter 76 of the Civil Code of Ukraine.

According to Article 1115 of the Civil Code of Ukraine, under a commercial concession agreement one party — the right holder (franchisor) — for a fee grants the other party — the user (franchisee) — the right to use a complex of rights belonging to the right holder, in accordance with established requirements, for the purpose of producing and/or selling certain goods or providing services.

Thus, the franchisor transfers to the franchisee a set of rights to use intellectual property objects, in particular:

• a trademark;
• a commercial (trade) name;
• business reputation and commercial experience;
• know-how, business model, etc.

The main features of such an agreement are:

• the written form of the agreement;
• the right holder’s obligation to exercise control over the quality of goods, works, or services produced or provided by the user;
• joint and several liability of the franchisor for consumers’ claims against the franchisee (Article 1123 of the Civil Code of Ukraine).

2. In the EU, franchising does not have specific legislative regulation, but it falls under:

• contract law rules;
• competition law norms;
• the doctrine of agency/de facto control, which allows courts to classify the franchisor as an agent or dependent entity if it effectively controls the franchisee’s operations, pricing, marketing, and personnel.

The European Code of Ethics for Franchising is an industry self-regulatory standard developed by the European Franchise Federation (EFF) to establish ethical, transparent, and fair relationships between franchisors and franchisees.

Although this Code is not a binding EU legislative act, it:

• serves as a guide to franchising best practices;
• promotes fair conduct, good faith, and transparency in franchisor–franchisee relationships;
• can be adapted at the national level (through national legislation), provided that adaptations do not contradict the main text of the Code.

Within the framework of the Code, franchising is understood as a system for marketing goods, services, or technologies based on long-term cooperation between legally and financially independent enterprises: the franchisor and the franchisee. The franchisor grants the franchisee the right (for direct or indirect financial compensation) to operate a business according to its concept, including the right to use trademarks, know-how, and other IP elements under a written franchise agreement.

3. Regarding the advantages and risks of a franchise agreement:

What is a White Label agreement?

A White Label is a contractual model that has no specific statutory definition in either Ukraine or the EU. It is usually implemented in the form of a license agreement, a SaaS agreement (for digital products), or similar contracts. Key features include:

• One party provides a ready-made product or technology.
• The other party may sell it under its own brand, controlling marketing, pricing, and operations.
• The supplier’s business model is not transferred.
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Franchising and the White Label model are two different legal instruments for business scaling, differing not only in their economic logic but also in the level of legal liability, control, and regulatory burden. The choice between these models directly affects the structure of the agreement, the allocation of risks between the parties, and the potential legal consequences, particularly in the areas of consumer protection, intellectual propert and competition law.

From the perspective of the parties’ powers, franchising allows for significant control by the franchisor, including mandatory standards, marketing requirements, trademark use, and customer interaction formats. In a White Label model, such elements must be minimized — any interference by the supplier in the partner’s operational activities creates a risk of reclassification of the agreement as a franchise or agency relationship.

The limits of liability also differ substantially. In franchising, the right holder bears increased legal and reputational risks, particularly in the area of consumer protection (in Ukraine, this includes the possibility of subsidiary liability). Under a White Label model, the supplier’s liability should be limited to the quality and functionality of the product, while all consumer, regulatory, and marketing risks are borne by the partner.

At the same time, it should be taken into account that if a franchisee acts outside the scope of the agreement or unlawfully (for example, violating advertising law, personal data protection regulations, or tax legislation), the franchisor generally does not bear liability, as such actions are not related to the transferred franchise.

A franchisor may face liability only if the unlawful actions were caused by the franchisor’s actual control or instructions.

Conclusions

The key factor in choosing and structuring a model is ensuring that the agreement reflects the actual business logic. If a company transfers its brand and business operation standards, this constitutes franchising, with an increased level of control and liability. If, however, only a product or technology is transferred without influencing the partner’s operational activities, the White Label model is optimal — provided that the agreement clearly limits powers, liability and the use of intellectual property.

From a practical standpoint, the effective use of either model requires clear contractual definition of the scope of transferred intellectual property rights, the boundaries of control, the allocation of liability, and mechanisms for protecting the parties in the event of breaches. Only under such an approach can franchising or White Label serve as effective and safe tools for long-term business scaling, both in Ukraine and in international markets.

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