Franchising Code of Ethics
1. Definition of Franchising
Franchising is a business structure for the sale and distribution of goods/services where there is an ongoing, agreed relationship mutually benefiting the parties carrying out business with the assistance of advice, guidance, peer-to-peer and linear support, following recognised and proven methods with regards to operations, products, services, marketing and training.
The agreed relationship is a close and ongoing partnership between legally and financially separate and independent company structures bound by a legal agreement. Under this agreement, the Franchisor grants the individual Franchisee the right and imposes the commitment to carry out a business in accordance with the Franchisor’s operations manual.
The rights awarded entitle the Franchisee, in exchange for a direct or indirect financial benefit, to use the Franchisor’s trading style, know how, procedural business system, technical methods, and intellectual property rights and generally replicate the Franchisors business model.
2. Guiding Principles
The Franchisor is the long-term custodian in the franchise network, composed of itself and its individual Franchisees, of which the Franchisor is the initiator.
- The obligations befalling the Franchisor: A Franchisor shall have operated at least one pilot unit, either separately or as part of the initial operation with success, for a reasonable time and be able to prove to be the owner or have legal rights to the use of the trading name or trade mark and be able to show it can provide an individual Franchisee with initial training and continuing commercial and /or technical assistance during the entire life of an agreement before starting its franchise network.
- Both parties’ ongoing obligations: Parties should strive to resolve disputes, grievances and complaints with good faith and goodwill through reasonable and fair direct communication and negotiation. The Franchisor must give written notice to its Franchisees in the event of any contractual breach and, where appropriate, grant reasonable time to remedy default and as appropriate assist where necessary.
When dealing with each other it should be evident that fairness is exercised.
- The obligations of the Franchisee: The Franchisee shall – devote its best efforts to the growth of the franchise business model and to the maintenance of the common identity and reputation of the franchise network; supply the Franchisor with confirmable operating management information to facilitate the determination of performance and the financial statements necessary for effective management guidance and where a franchise agreement dictates, allow the Franchisor, and /or its agents, to have access to the individual Franchisee’s premises and records at the Franchisor’s request and at reasonable times. The Franchisee shall not disclose to third parties the know-how provided by the Franchisor, neither during nor after termination of the agreement.
3. Advertising, Recruitment and Disclosure
- Any publicity material references to future possible trading results, profit figures or earnings to be expected by Franchisees, must be objective and not to be misleading.
- Recruitment Advertising for Franchisees shall not contain or rely on misleading or ambiguous statements.
- If a Franchisor imposes a pre-contract on a candidate Franchisee, the following principles should be respected: prior to the signing of any pre-contract, the candidate Franchisee should be given written information on its purpose and on any consideration he may be required to pay to the Franchisor to cover the latter’s actual expenses, incurred during and with respect to the pre-contract phase; if the agreement is executed, the said consideration should be reimbursed by the Franchisor or set off against a possible entry fee to be paid by the Individual Franchisee; the pre-contract shall define its term and include a termination clause; the Franchisor can impose non-competition and/or secrecy clauses to protect its know-how and identity.
4. Franchisee Selection
Only those who, upon reasonable investigation, appear to possess the personal qualities, financial resources, education and basic skills sufficient to carry on the franchised business, should be awarded a franchise opportunity.
5. The Franchise Agreement
- The Franchise agreement shall be in accordance and abide by the law prevailing within the country of operation.
- The agreement shall reflect the interests of the members of the franchised network in protecting the Franchisor’s industrial and intellectual property rights and in maintaining the common identity and reputation of the franchised network.
- The Franchise agreement shall state without ambiguity, the particular responsibilities and obligations of the parties and all other material terms of the relationship in relation, but not limited to; minimum terms of the agreement; rights granted to the Franchisor; rights granted to the Franchisee; goods and/or services to be provided to the Franchisee; obligations of the Franchisor; obligations of the Franchisee; duration of the agreement which should be long enough to allow Franchisees to benefit from a return on the initial investment; terms of payment by the Franchisee; basis for any renewal of the agreement; terms upon which the individual Franchisee may sell or transfer the franchised business and the Franchisor’s possible pre-emption rights in this respect; conditions regarding the use by the individual Franchisee of the Franchisor’s distinctive, trading name, trademark, logo or other distinguishing identification; Franchisor’s right to adapt the franchise business model to new or improved/changed methods; provisions for termination of the agreement; provisions for surrendering promptly upon termination of the franchise any tangible and intangible property belonging to the Franchisor or other owner thereof.