South Africa: Disclosure Is Compulsory

Last Updated: 3 October 2013
Article by Eugene Honey

Franchisors who fail to adhere to the CPA requirements regarding disclosure place their company at a substantial risk and may even find themselves facing stiff fines and/or imprisonment.

Despite the fact that the Consumer Protection Act ("CPA") came into operation on or about 1 April 2011, there are still numerous franchisors who have not prepared Disclosure Documents, or who are not furnishing their prospective franchisees with a compliant Disclosure Document. This clearly places the franchisor at substantial risk.

Regulation 3(1) of the CPA stipulates that every franchisor must provide prospective franchisees with a Disclosure Document, dated and signed by an authorized officer of the franchisor, at least 14 days prior to the signing of the Franchise Agreement. The Disclosure Document should, at a minimum, contain the following:

  • The number of franchised outlets,
  • The growth in the franchisor's turnover, net profit and number of franchised outlets,
  • A statement confirming that there have been no significant or material changes in the franchisor's financial position since the last accounting certificate, or that the franchisor is able to pay its debts as and when they fall due, and
  • Written projections of potential sales, income, gross or net profits and other financial projections.

The Disclosure Document must be accompanied by a certificate from an accounting officer or auditor certifying that:

  • The franchisor is a going concern,
  • To the best of his/her knowledge, the franchisor is able to meet its current and contingent liabilities,
  • The franchisor is capable of meeting all its financial commitments in the ordinary course of business as they fall due, and
  • The franchisor's audited financial statements for the previous year have been drawn up:
    • in accordance with South African generally accepted accounting standards,
    • On the basis of accounting policies consistent with previous years, unless otherwise stated,
    • In accordance with the Companies Act and other applicable laws, and
    • To fairly reflect the financial position, affairs, operations and results of the franchisor.

The Disclosure Document must also be accompanied by:

  • A list of current franchisees and any franchisor-owned outlets including:
    • The name of the franchisee,
    • The name of its representative,
    • Its physical address, and
    • Contact details including email and telephone number and a clear statement that the applicant is entitled to contact any such franchisees.
  • An organogram depicting the support system in place for franchisees.

Members of the Franchise Association of South Africa (FASA), however, are required to adhere to additional requirements which can be found at

Part C of the CPA deals with offences and penalties. Section 111 states that any person convicted of an offence in terms of the CPA may be liable:

  • For a fine or imprisonment for a period not exceeding ten years, or a fine and imprisonment in the case of a contravention of section 107(1) which deals with breach of confidence. It is an offence to disclose any personal or confidential information concerning the affairs of any person obtained in carrying out any function in terms of this Act, or as a result of initiating or participating in any proceedings in terms of this Act; or
  • In any other case, for a fine and/or imprisonment for a period not exceeding 12 months.

Section 112, which deals with administrative fines, states, inter alia, that the Consumer Commission Tribunal may impose an administrative fine in respect of prohibited or required conduct. The administrative fine imposed in terms of the CPA may not exceed the greater of R1-million or ten percent of the franchisor's annual turnover for the preceding financial year.

When determining an appropriate administrative fine, the Tribunal must consider the following:

  • The nature, duration, gravity and extent of the contravention,
  • Any loss or damage suffered as a result of the contravention,
  • The behaviour of the respondent,
  • The market circumstances in which the contravention occured,
  • The level of profit derived from the contravention,
  • The degree to which the respondent has cooperated with the Commission and the Tribunal, and
  • Whether the respondent has previously been found in contravention of the CPA.

Very importantly, section 113 of the CPA provides for vicarious liability. This means that, in terms of the CPA, an employer or principal is jointly and severally liable with their employee or agent for any acts or omissions committed in the course of their employment or activities on behalf of the employer/principal. As a result a franchisor is liable for any/all acts or omissions committed by an employee while carrying out the business of the franchisor.

The aforesaid penalties, fines and sanctions are of course in addition to the rights of a court, tribunal or similar forum to cancel a Franchise Agreement or amend the terms thereof, which may lead to substantial losses for the franchisor. In addition to the fines, penalties and sanctions in terms of the CPA, the franchisor may find itself at the receiving end of claims for damages as well as losses and additional obligations, or termination of Franchise Agreements. It is certainly also not in the franchisor's best interests to place itself at risk of having its Franchise Agreements cancelled or terminated as a result of the Franchisor's non-compliance with the disclosure requirements as stipulated by the CPA.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions