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
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.
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