chapter 2

• Franchise agreements in the Philippines are considered contracts and governed by the Civil Code
• Franchising arrangements in the Philippines could also be considered as technology transfer arrangements and covered by the pertinent provisions in the Intellectual Property Code
• The Philippine Franchise Association (PFA) acts as a voluntary self-regulating governing body for franchising in the Philippines
• The Fair Franchising Standards (FFS) developed by the Philippine Franchise Association (PFA) are based on United States franchising laws and serve as criteria when accrediting franchise businesses
• Members of the Philippine Franchise Association (PFA) are bound by the Fair Franchising Standards (FFS) and the Association’s code of ethics, which promotes transparency and fairness in the sale of franchises
• Franchise Feasibility Study includes:

  • Executive summary that summarizes the story of the Franchise Venture
  • Franchise Trademark and Important Logos
  • Marketing segment covering demographics, psychographics, geography, and behavior
  • Management segment detailing the departments needed for the franchise to work
  • Legal requirements including business permit, DTI permit, Barangay Permit, SEC registration, etc
• Major Marketing Objectives (SMART) include:

  • Specific objectives targeting areas for improvement to generate sales
  • Measurable indicators of progress
  • Assignable tasks specifying who will do them
  • Realistic results achievable with available resources
  • Time-related goals specifying when results can be achieved
• Marketing Plan involves:

  • Describing the type of advertising and marketing campaign ads
  • Creating a pricing strategy for the product and business setup
  • Establishing franchising location criteria selection to prevent competition
  • Marketing to franchisees through a Franchise Sales Brochure
• Management Systems include:

  • Proposed Headquarters explanation
  • Franchise Organization Philosophy detailing the adopted culture
  • Personnel Management positions needed in the organizational chart
  • Operations Manual discussing the transformation of inputs into outputs
  • Training Manual specifying the type and duration of employee training
  • Policy description applying to employees
  • Procedures outlining the step-by-step process for the business
• Finance and Accounting section includes:

  • Pro forma Income Statement
  • Pro forma Balance Sheet
  • Pro forma Cash Flows (Optional)
• Business Structure discusses the setup options:

  • Sole Proprietorship
  • Partnership
  • Corporation
• Sample Franchising Agreement key elements:

  • Use of Trademarks
  • Location of the Franchise
  • Term of the Franchise
  • Franchisee’s Fees and Other Payments
  • Obligations and Duties of the Franchisor
  • Obligations and Duties of the Franchisee
  • Restrictions in the Goods and Services Offered
  • Renewal, Termination, and Transfer of Franchise Agreement
• Important Key Elements in a Franchise Agreement:

  • Use of Trademarks
  • Location of the Franchise
  • Term of the Franchise
  • Franchisee’s Fees and Other Payments
  • Obligations and Duties of the Franchisor
  • Obligations and Duties of the Franchisee
  • Restrictions in the Goods and Services Offered
  • Renewal, Termination, and Transfer of Franchise Agreement
• Use of Trademark in a Franchise Agreement includes:

  • Lists of trademarks, service marks, and logos the franchisee can use
  • Lists of restrictions on their use by the franchisor or franchisee
• Location of the Franchise in a Franchise Agreement describes:

  • The exclusive area or territory granted to the franchisee
  • The exclusive rights in a certain territory
• Term of the Franchise in a Franchise Agreement specifies:

  • The duration of the agreement
  • How long it lasts and the rights of the franchisee to renew
  • Rights of the franchisor to purchase the franchise before expiration
• Franchisee’s Fees and Other Payments in a Franchise Agreement describe:

  • Franchise fees
  • Initial fees and what the franchisee receives for that fee
  • Royalty fees
  • Advertising/Marketing Fees
  • Other Fees
• Obligations and Duties of the Franchisor in a Franchise Agreement detail:

  • Services provided by the franchisor such as training, operations support, and advertising
• Duties of the Franchisee in a Franchise Agreement include:

  • Franchisee’s responsibilities like training, business participation, and record-keeping
• Restrictions in a Franchise Agreement may include:

  • Required Quality Standards
  • Approved Suppliers
  • Approved Advertising
  • Hours of Operation
  • Pricing
• Renewal in a Franchise Agreement involves:

  • Terms and conditions for renewal or successor agreement fee
  • Remodeling, refurbishing, or updating site location
  • Signing the “Then-Current” form of Franchise Agreement
• Termination in a Franchise Agreement allows:

  • Suspending performance under the agreement for a “material breach”
  • Terminating the agreement for unresolved material breaches after a demand for resolution
• Transfer in a Franchise Agreement gives the right to sell:

  • Transfer of lease
  • Membership Interests
  • Ownership Percentage
  • Franchisor approval for sale
• Tips Before Signing a Franchise Agreement:

  • Read and understand the agreement thoroughly before signing
  • Allocate time to review and weigh pros and cons before signing
  • Consult a legal expert before signing