The Importance of Franchise Agreement in the Development Process of Small and Medium-Sized Businesses

Abstract

Franchise agreements play a significant role in the development of small and medium-sized enterprises (SMEs) by providing access to established business models, recognized brands, and managerial support. This article examines the legal effectiveness of franchise agreements in protecting SMEs and maintaining a fair balance between the contractual rights and obligations of franchisors and franchisees. The research employs qualitative methods, including doctrinal legal analysis, systematic analysis, and critical examination of relevant scholarly literature. The findings indicate that, despite their potential to reduce market-entry risks and promote business stability, franchise agreements may expose SMEs to legal and economic vulnerabilities arising from standardized contractual terms, excessive control, restrictive non-compete clauses, and the disproportionate allocation of economic risks. The analysis further highlights the importance of mandatory legal provisions, the principle of good faith, competition law, and confidentiality obligations in safeguarding the legitimate interests of franchisees. The study contributes to the legal analysis of franchising by examining the protection of franchisees under Georgian law and identifying the contractual and regulatory safeguards necessary to maintain a balance between the parties. The article concludes that the effectiveness of franchising as a mechanism for SME development depends not merely on the existence of a contractual framework, but on its fairness, legal compliance, and practical implementation. A balanced approach to contractual freedom and legal protection is therefore essential to preserving entrepreneurial independence and supporting the sustainable development of SMEs.