Looking to Invest in a Franchise? Read this First.
If you are going to invest in a Franchise, or even if you currently own one, it is important to have an understanding of the law and its implications in relation to franchising.
South African legislation protects the rights of franchisees through two pieces of legislation, namely: The Consumer Protection Act and The Competition Act.
According to The Consumer Protection Act, a franchise agreement between parties has to be in place prior to commencement of a business relationship. This must be set out in a written document that outlines the terms and conditions that the franchisee and franchisor must adhere to.
The franchise agreement must contain a clause stating that the franchisee has a right to cancel the agreement by giving notice in writing within ten business days after signing. No costs or penalties are incurred in this regard.
The following should also be contained in the agreement:
- Intellectual and commercial property issues
- Operational details
- Financial arrangements
- The initial and ongoing rights and obligations of franchisor and franchisee respectively
Franchisees are construed as consumers and enjoy protection from exploitation by the franchisor. The Act requires transparency on the part of both parties and that all details must be in writing and in plain English.
A franchisor is obligated to furnish a detailed operations manual that explains how business works. If a franchisor fails to do so, the franchisee has legal recourse in terms of the Act.
The Competition Act on the other hand states that there must be a balance between protection of the franchise system, the interest of franchisees and the public in ensuring adequate competition.
To comply with the Act, you need to take note of the following: resale price maintenance, territorial restrictions, exclusive dealing, tying and intellectual property.
Apart from the franchise agreement, you will also come across the following legal documents during the franchise evaluation process: a Secrecy Understanding, a Disclosure Document, Operations Manual, Lease Agreement over premises and Funding Agreement.
For any queries regarding the above or assistance with compliance or any other commercial needs please contact Myers Attorneys on 011 346 2422 or firstname.lastname@example.org
You can also visit our website www.myersattorneys.co.za