Franchising: When the franchisor grants licensing rights to a franchisee to use the franchise business system. The franchisor will remain the owner of all intellectual property rights surrounding the business system.
A franchise agreement should specify the basis on which the franchisor will allow franchisees to use the franchisor’s business system and intellectual property rights, including trademarks, copyright and know-how. This document should outline all terms and conditions surrounding the use of the franchise system, as well as the obligations of both the franchisor and the franchisee.
The protection of a franchisor’s business system and intellectual property in relation thereto, is of utmost importance. It is essential that a franchise agreement properly identifies all aspects of the franchisor’s business system, intellectual property and other proprietary rights. A competently written franchise agreement is a key factor to promote and enhance a win-win situation and to protect the rights of both the franchisee and the franchisor, as well as the entire franchise operation. A franchise agreement should also focus on and accommodate the needs and requirements of the specific franchise operation and control the relationship between the parties in a positive and constructive manner.
The purpose of a Disclosure Document is to provide a prospective franchisee with adequate information surrounding the franchise business. The Disclosure Document should enable a prospective franchisee to evaluate the franchise system and the viability of the franchise business. In terms of the Consumer Protection Act, franchisors are obliged to provide franchisees with a Disclosure Document containing the minimum prescribed information.
The Operations Manual is a detailed outline of the day to day operations and procedures of the franchise business. This manual should enable franchisees to manage the franchise business effectively in accordance with predetermined standards and criteria. The franchisor should endeavour to compile the manual user friendly and comprehensive, to be a constant guide and source of operational reference for the franchisee. It is important that the operations manual reflects current business practises of the franchise system and should therefore be updated on a regular basis.
Franchisors: A franchisor should ensure that all franchise documentation are in compliance with the relevant statutory requirements, including the Consumer Protection Act as well as other applicable legislation and regulations. A franchisor would be well advised to protect all intellectual property rights which may be applicable to the franchise system. A franchisor should properly quantify and qualify all rights and obligations of both parties in the franchise agreement in order to limit possible disputes.
Franchisees: A franchisee should understand the nature of the franchise transaction which it will be entering into. A franchisee should be advised on the risks and financial exposure regarding the franchise business. A franchisee should understand its obligations in terms of the franchise agreement as well as the fact that it will operate a licensed business. A franchisee should also be familiar with its rights as afforded in terms of the Consumer Protection Act.