5 ideas for franchise settlement compliance
South Africa has some nice homegrown franchises – Mugg and Bean, Steers, Debonairs and Nandos, to call a number of. South Africa can also be no stranger to worldwide franchise teams, akin to McDonalds, KFC, Wimpy and SPAR, though there was a rise within the variety of worldwide franchises investing in South Africa lately.
The Shopper Safety Act (CPA) is the primary piece of laws in South Africa that particularly regulates franchise agreements. The CPA prescribes sure minimal necessities for franchise agreements, in addition to sure info that have to be disclosed previous to a franchise settlement being signed. It is necessary that every one franchise agreements adjust to the CPA as provisions in franchise agreements could also be declared to be void for non-compliance.
Beneath are 5 ideas to make sure that your franchise settlement complies with the CPA:
- Ensure you meet the minimal necessities
The CPA prescribes “minimal necessities” for franchise agreements. These necessities, that are set out within the Rules to the CPA, set out necessary phrases (i.e. phrases which have to be included) and prohibited phrases (i.e. phrases which should not be included). Additionally they prescribe that franchise agreements have to be drafted in easy and plain language in order to be simply understood. Authorized jargon have to be averted until completely essential.
- Embrace prescribed minimal info
The CPA prescribes minimal info that have to be included in a franchise settlement. Most of this minimal prescribed info is pretty common in nature and can be contained within the franchise settlement within the odd course (for instance, identify and outline of the varieties of items or companies that the franchise pertains to, the obligations of the franchisor and franchisee, and any territorial rights). There are, nevertheless, sure extra uncommon necessities in relation to prescribed info, which info wouldn’t essentially be contained in a franchise settlement within the odd course (for instance, the {qualifications} of the franchisor’s administrators, and particulars of the members/shareholders of the franchisor). These extra uncommon necessities have to be stored in thoughts when getting ready a franchise settlement.
- Put together a disclosure doc
The CPA requires the franchisor to supply sure minimal prescribed info to the franchisee in a disclosure doc delivered to the franchisee previous to the signature of the franchise settlement (together with a listing of present franchisees, if any, and of shops owned by the franchisor; the direct contact particulars of the present franchisees; an organogram depicting the help system in place for franchisees; and an auditors certificates confirming that that the franchisor’s audited annual monetary statements are so as). This info is meant to supply the franchisee with sufficient details about the franchise, its monetary viability and potential enterprise success in order to allow the franchisee to make an knowledgeable choice as as to whether or not he/she needs to “purchase” the actual franchise.
- Put together a non-disclosure settlement
You will need to make sure the safety of confidential info which can be disclosed to the possible franchisee through the preliminary levels of negotiating and concluding a franchise settlement. This will likely embrace, for instance, the expansion of the franchisor’s turnover, and written projections in respect of ranges of potential gross sales, revenue and revenue. Though not a requirement below the CPA, it’s advisable for a franchisor to make sure that a potential franchisee executes an acceptable confidentiality settlement previous to being despatched the disclosure doc.
- Beware the “cooling-off” interval
You will need to keep in mind {that a} franchisee has an entitlement below the CPA to cancel a franchise settlement with out price or penalty inside 10 enterprise days after signing such settlement, by giving written discover to the franchisor.
