Franchise agreements have become a popular business model in the Philippines, offering aspiring entrepreneurs the chance to start a business under a proven brand with a ready-made system in place. However, before signing on the dotted line, understanding the franchise agreement is crucial for both the franchisor and the franchisee.
A franchise agreement is a legally binding contract between a franchisor and a franchisee. It outlines the terms and conditions by which a franchisee is granted the right to operate a business using the franchisor’s brand name, trademarks, and business system. The franchise agreement also defines the responsibilities and obligations of both parties, including the franchise fee, royalty payments, and marketing expenses.
In the Philippines, franchise agreements are covered by several laws and regulations, including the Philippine Constitution, the Philippine Franchise Act of 1998, and the Revised Implementing Rules and Regulations. The Philippine Franchise Act of 1998 aims to promote the development of the franchise industry in the country, protect the interests of franchisees and franchisors, and ensure fair and honest business practices.
Under the Philippine Franchise Act of 1998, franchisors must provide potential franchisees with a franchise disclosure document (FDD) at least 20 days before signing a franchise agreement. The FDD contains information about the franchisor’s background, financial statements, and franchise system. Franchisees must also receive a copy of the franchisor’s operations manual and attend training before starting their business.
When considering a franchise agreement, it is essential to carefully review the terms and conditions. Some key provisions to examine include the franchise fee and royalty payments, which can vary from franchisor to franchisor. Also, take note of the terms of the agreement, including the duration of the franchise, termination clauses, and renewal options.
Before signing a franchise agreement, it is also recommended to conduct due diligence on the franchisor and its franchising system. Consider the franchisor’s reputation, financial stability, and track record in supporting its franchisees. Speak with current and former franchisees to gain insight into their experiences with the franchisor.
In conclusion, franchising can be an excellent opportunity for entrepreneurs to start a business under a proven brand with a ready-made system. However, it is crucial to understand the franchise agreement’s terms and conditions and conduct due diligence on the franchisor before signing on. With the proper research and preparation, franchising can be a successful and rewarding business venture in the Philippines.