Since you are already here, you probably know well enough what the essence of franchising really is. However, for the purpose of making this article a more complete material, we will start with a simple definition. Franchising is a marketing concept and an expansion strategy for businesses. A franchisor licenses its intellectual property, know-how, business model and procedures to a franchisee who pays certain franchising fees and agrees to comply with certain rules to conduct business under the license.
How popular is franchising in Singapore?
There is no recent data available, at least to us, for franchising practices in Singapore. As of 2012 there have been more than 600 franchising schemes operating in Singapore with some 40 000 franchisees. In recent years the popularity of franchising seems to be increasing and franchise businesses are all around well received in the country.
Although Singapore is a relatively small country its population has a very high standard of living. The country has some of the most favorable conditions for entrepreneurship in the whole world and these two factors combined create an environment that helps many small and medium enterprises including franchisees to thrive locally.
Local franchises are more popular in Singapore although there are also implemented schemes of master franchising.
Are there any regulations in franchising in Singapore?
Currently, there are no laws regulating franchising in Singapore. Thus, there are no requirements for setting up franchising schemes. The Franchising and Licensing Association of Singapore has a voluntary Code of ethics with some general rules on franchising, such as:
- The requirement for license agreements to be drafted in writing;
- A prohibition on the misleading sell of goods or services under franchising;
- An obligation for disclosure of information between a franchisor and a franchisee;
- The obligation of the franchisor to provide training and guidance to the franchisee;
- Good faith and goodwill in dispute resolution.
Not all franchisors and franchisees are members of the FLA but it has become increasingly popular and membership in the association may prove beneficial to businesses who want to engage in franchise practices.
Although there are no explicit rules for setting up franchising schemes one must be aware of the regulations regarding the licensing of intellectual property. This license is often the most essential part of a franchise agreement.
How do draft a franchising agreement?
An important thing to remember for the franchising agreement is to draft it in writing so that written evidence of the contract terms exists. There is no need for notarization, legalization or registration.
Below are the most important parameters of the franchise agreement.
A franchise fee is a fee that the franchisee pays to operate a franchise business. It can be a fixed fee or a percentage of sales/profits. A one-time franchise fee can also be negotiated.
The license of intellectual property
The most important assets of the franchiser are their brand and know-how. These must be transferred to the franchisee through a license. Under Singapore law, you may need to register the license with the Intellectual Property Office (IPOS).
Confidentiality and non-disclosure
The know-how of the franchiser is not a registrable intellectual property and it must be protected as a trade secret through confidentiality clauses and severe sanctions for the franchisee in case of infringement.
Training and guidance
It is common for franchisers to offer some sort of training and ongoing guidance to the franchisee and their employees. It is important to also include this obligation in the agreement.
Non-competition clauses may also be included in the agreement. In general, they protect the interest of the franchisor and are not intrinsic to the franchise scheme.
Duration of the franchise
It is important to define the duration of the franchise in the agreement. Most franchise agreements include a right of renewal for at least one further period, whether of the same duration or otherwise.