Franchising is a business model which has proved to be successful and is enjoying increasing popularity throughout the world. Notwithstanding the success of franchising globally, franchising in South Africa has not yet reached its full potential. As a business model, it only really started taking off from the 1960's onward.
This slow start has however changed as businesses have realised the enormous potential of franchising and how this can be used as a highly successful business model. A successful franchise will combine the strength and economies of scale of a large operation, while the owner/manager structure allows each franchisee to enjoy the fluidity of the entrepreneurial model, benefiting from flexibility and adapting to local knowledge. Franchising offers people the freedom to own, manage and direct their own business, with the support of an established business. It also provides a means for companies to expand effectively without incurring the high overheads and management difficulties often associated with establishing a branch network.
In South Africa, until recently, there was no national legislation regulating franchising. However, with the advent of the Consumer Protection Act (the "CPA"), this position has now been remedied. Before the coming into effect of the CPA, there was a sense of confusion as to what exactly franchising is. However, the CPA now provides a definition for a franchise agreement and prescribes certain criteria for franchise agreements. In addition, a franchisor must provide a disclosure document to potential franchisees. In terms of the CPA, all franchise agreements must now be in writing. Franchisees are afforded a 10 day cooling-off period during which they can terminate the franchise agreement without cost or penalty. Furthermore, the CPA now affords the franchisee a certain level of protection from abuse by the franchisor. The CPA provides that the terms of a franchise agreement must be fair, reasonable and just, and not excessively one-sided in favour of anyone else but the franchisee.
Due to the specialised nature of the franchising model and the provisions of the CPA, it is imperative to ensure that the appropriate expert advice is obtained. Adams & Adams has substantial experience in franchising and the firm is well positioned to assist both franchisors and franchisees with the setting up and entering into of franchise operations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.