Understand all the Legal Implications of Franchising in South Africa
Understand all the legal implications of franchising in South Africa
A good working knowledge of the law and its implications for franchising is essential if you want to invest in a franchise or currently own one. You must comply with certain legal requirements while also understand how the law protects you as a franchisee.
At first all the legal implications of franchising may seem overwhelming! As the leading website for franchise information and advice, we’re here to help you understand the legal implications of franchising in South Africa. In this article we explain the key legal elements and documents related to franchising.
Understand your legal rights as a franchise owner
South African legislation protects the rights of franchisees and there are two important pieces of legislation related to franchising:
- The Consumer Protection Act (CPA)
- The Competition Act
The CPA makes it clear that when a franchisee and franchisor enter into a business relationship, there must be a franchise agreement in place. A franchise agreement is 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. Here no costs or penalites can be imposed should the prospective franchisee walk away.
Understanding the franchise agreement is of utmost importance. It deals with:
- Intellectual and commercial property issues
- Operational details
- Financial arrangements
- The initial and ongoing rights and obligations of franchisor and franchisee respectively.
The Act considers franchisees as consumers and protects them from being exploited by franchisors. It requires that there must be transparency between the two parties. All the details must be in writing, in plain English and be understandable without a legal background. The franchisor is also obliged to provide a detailed operations manual that explains how the business works. If a franchisor fails to do this, the franchisee has legal recourse in terms of the Act.
The Competition Act is another important piece of legislation that affects franchisees when it comes to franchising arrangements.
This Act states that there must be “a balance between the protection of the franchise system and the interest of franchisees and the public in ensuring adequate competition.”
To comply with the Act and avoid anti-competitive conduct, as the franchisee, you must pay attention to the following areas in a franchise agreement:
- Resale price maintenance
- Territorial restrictions
- Exclusive dealing
- Intellectual property
Franchise legal documents
Apart from the franchise agreement, you’ll also come across the following legal documents during the franchise evaluation process:
- A secrecy undertaking –this document protects the franchisors’ legitimate interests and compels you to respect the confidentiality of the information included in the disclosure document.
- A disclosure document – this document provides you, the prospective franchisee, with all the necessary details and financial information abou the franchise offer. This vital document gives franchises the opportunity to make an informed decision.
- An operations manual – while not a legal document per se the operations manual is the set of guidelines that you agree to follow according to the franchise agreement. This document should provide answers to all the operational questions a franchisee might have.
- Lease agreement over premises – this document includes details about site selection and lease negotiations. Franchisors normally help franchisees with site selection and advice regarding the lease. That said, the lease agreement will usually be between the owner of the premises and the franchisee.
- Funding agreements – franchising typically involves entering into one or more funding agreements usually with a bank and or an equity partner. When dealing with equity partners it’s advisable to have a lawyer to draft the agreement, so you avoid any legal comebacks.
Get reliable franchising advice
As with any business deal, it’s important that you understand all the legal implications. Do your homework, read the fine print and seek legal advice before you commit to anything.The good news is that whichfranchise.co.za is here to help you with franchising legal advice. We’ve enlisted the help of leading franchise legal expert, Maria D’Amico from D’Amico Incorporated Attorneys.
In our FAQ section, she’s helped entrepreneurs understand:
- Their rights as a franchisee when a franchise is de-franchised
- When they’re entitled to receive a network’s disclosure document
- What to do should they what to leave a franchise network
- If it’s legally permissible for a franchisor to reject a franchise application without furnishing reasons for the decision
Read through this section and feel free also to pose her a question. With the right reading material and access to an experienced franchise legal expert, whichfranchise.co.za allows you to reap the benefits of franchising while understanding your legal rights and obligations.