The Franchise system has become essential in all countries of the world in light of the global economic changes, which aims to open markets and drop barriers to goods and capital, providing the latest marketing systems, management, transfer of technology, expertise and job creation opportunities in most productive and service sectors.
Franchising in Egypt has proven to be successful business system especially for food and beverage entities aiming to grow and expand in the Egyptian market, in some cases it is convenient and more beneficial to purchase a franchise that is already established with a known name and a well-established customer base. However, there are specific legal considerations that should be acknowledged prior to the purchase. Therefore, the purchaser (The Franchisee) should consult an experienced franchise attorney to assist the Franchisor and the Franchisee understand the legal issues arising from a franchise agreement and to help them avoid falling into pricey mistakes.
There are two major documents which control the Franchisor-Franchisee relationship, which are the FDD (Franchise Disclosure Document) and the Franchise agreement.
First: The FDD (Franchise Disclosure Agreement): is formed to provide the Franchisee with the necessary information about the Franchisor in order to facilitate taking a careful and secure decision of purchasing a particular Franchise. Upon the receipt of the FDD, the Franchisor must give potential Franchisees 14 days period to give them an adequate time to examine the future business before they sign the Franchise agreement or execute any payments.
Primarily, the FDD includes:
- The Franchisor’s parent companies, affiliates and their history
- Company’s key staff including professional backgrounds of the franchise’s officers, executives, and directors
- Franchisor’s bankruptcy and litigation history
- Initial and other recurring fees
- Required investment and purchases
- Restrictions on Sources of Product/Service
- Any exclusive territory is described, plus whether or not it will be modified
- Franchisor’s assistance, advertising, and training
- All information about the Franchisor’s trademarks, Patents, Copyrights, and Proprietary Information
- Renewal, Termination, Transfers, and Disputes
- All contracts that the Franchisee is required to review and sign
- Obligations of the Franchisor and Franchisee
- Other Franchisees in the system
Consequently, the FDD shall be considered as an important tool that should be reviewed with an experienced Franchise lawyer. During the review there must be an evaluation of the Franchisee’s expectations and whether the legal rights mentioned in the FDD precisely meet their needs and expectations.
Second: The Franchise Agreement: Shall be included in the FDD and it is more specific than the FDD about the terms governing the relationship between the Franchisor and a Franchisee. It has more information regarding:
- The Obligations of the Franchisor
- The obligations of the Franchisee
- The right to renewal
- Training provided
- The geographical scope of the contract
- Fees and payment
- Termination and expiration
There are actually no specific legislation or regulation governing franchising, The Franchisor-Franchisee relationship is governed primarily by the Franchise Agreement. It is the crucial document that controls and determines the rights and obligations of the Franchisor and Franchisee, and the relationship between them. Since it is quite challenging to run a successful network for a wide geographical area if different conditions are provided to each area separately, that’s why the Franchise Agreement usually is one standard document that is offered to all Franchisees. In some circumstances it can be negotiated to suit the parties needs.
A Franchise Agreement should achieve three paramount objectives:
- Given the absence of specific legislation that regulates Franchising, it should contractually bind the Franchisor and Franchisee, and clearly set out the provisions agreed upon.
- It should provide sufficient terms to protect the Franchisor, Franchisee, and the Franchise’s intellectual property.
- It should expressly establish the clauses to be observed by the parties, including those related to the termination of the agreement.
The Franchise agreement may have legal complications for the Franchisee and it is vital that these clauses, terms and conditions are analyzed properly before signing the document. Before executing the payment, the Franchisee should study the market and how the Franchise operates within the location if there is lack in the customer base there, and it is important to know the financial history of the Franchise considered. This could reflect on the purchase and lead to financial complication.
Finally, it is well known that any prospective Franchisee must take the important steps of performing due diligence before considering buying a franchise to avoid committing investment mistakes and minimize the possible risks.
Franchising in Egypt:
Egypt does not have a Franchise Law or specific law organizing franchising. When concluding a franchising contract parties must keep in mind that in Egypt, the main law to be resorted to when needed, is the Civil Code, Commercial Code, certain provisions from the Intellectual Property rules, Taxation law, Labor law and Insurance Law.