Franchise Business Agreement in the Philippines: A Guide for Entrepreneurs
If you`re an aspiring entrepreneur in the Philippines, you might have considered franchising as a good option to start your business. Franchising is a business model where a franchisor grants a franchisee the right to use its trademark and business system in exchange for fees and royalties. This arrangement can be beneficial for both parties, as the franchisor gets to expand its brand and profit, while the franchisee can start a business with a proven system and support from the franchisor.
However, before you sign a franchise business agreement, it`s important to understand the legal requirements and obligations involved in franchising in the Philippines. Here are some key things you need to know:
1. Registration with the Philippine Franchise Association (PFA)
The PFA is the voluntary self-regulating body for the franchising industry in the Philippines. It aims to promote ethical franchising practices and protect the interests of franchisors, franchisees, and the public. If you`re a franchisor, you can apply for PFA membership and get certified as a “Philippine Franchise” if you meet the PFA`s standards for franchise excellence. If you`re a franchisee, you can check if your franchisor is a PFA member and if its franchise offering is registered with the PFA.
2. Compliance with the Franchise Disclosure Document (FDD)
Under the Philippine Franchise Disclosure Act (RA 2018 or “An Act Regulating the Franchise Agreement and Providing Penalties for Violations Thereof”), franchisors are required to provide a Franchise Disclosure Document (FDD) to prospective franchisees at least 14 days before the signing of the franchise agreement. The FDD should contain information about the franchisor`s business, financial performance, franchise fees and royalties, and other material facts that may affect the franchisee`s decision to invest. The FDD should also be registered with the PFA.
3. Negotiation of the franchise agreement
The franchise agreement is a legally binding contract between the franchisor and franchisee that outlines the terms and conditions of their relationship. The franchise agreement should comply with the provisions of the Philippine Civil Code, the Philippine Competition Act, and other relevant laws and regulations. You should review the franchise agreement carefully and seek legal advice before signing it, as it may affect your rights and obligations as a franchisee. You should also negotiate the terms that are favorable to you, such as the duration of the franchise, the renewal options, the territorial rights, the support and training provided by the franchisor, and the dispute resolution mechanisms.
4. Payment of franchise fees and royalties
Franchise fees and royalties are the main sources of revenue for franchisors. Franchise fees are one-time payments made by the franchisee to the franchisor for the right to use its trademark and business system. Royalties are ongoing payments made by the franchisee to the franchisor based on a percentage of the franchisee`s gross sales. The franchise fees and royalties should be specified in the franchise agreement and should be reasonable and commensurate with the services provided by the franchisor.
5. Compliance with operational standards and quality control
The franchisor has the right to prescribe the operational standards and quality control measures that the franchisee should follow to maintain the consistency and integrity of the franchisor`s brand. The franchisor may conduct regular inspections, audits, and training sessions to ensure that the franchisee complies with these standards. The franchisee should also adhere to the franchisor`s policies and procedures for marketing, advertising, and customer service.
Franchising can be a rewarding and profitable venture if you do it right. By complying with the legal requirements and obligations of franchising in the Philippines, you can minimize the risks of franchising and maximize the benefits for your business. Remember to do your due diligence, negotiate the terms of the franchise agreement, and seek professional advice before investing in a franchise. Good luck!