Starting a Franchise in Singapore: What Franchisors Should Look Out For

In this article on franchising, we will discuss the benefits of starting a franchise and what to look out for as a franchisor in Singapore.

Why Should I Start a Franchise?

There are several benefits associated with franchising your business. For example, if you need to raise capital, franchising may be a more cost-effective method compared to selling equity or raising a loan.

Franchising is also an efficient way to grow your business. Since your franchisee would be incentivised to properly manage and grow his franchise unit due to the significant investment of capital he has made in it, in turn, your business performance would improve.

Furthermore, franchising would also allow you to tap on the local market knowledge of your foreign franchisees.

The commercial environment in Singapore is fairly friendly to a franchisor as there is a lack of specific franchising laws here.

However, to ensure the smooth operation of the franchise system, you should be aware of the potential legal issues relating to franchising, of which some are canvassed below.

What are Some Legal Issues I Should Consider?

Register your trade mark

Since it is your intellectual property that is of value in your franchise, you should protect it via the legal means available.

You should register your trade mark so that you can exploit it, by licensing it for use by franchisees for commercial returns.

When you have registered your trade mark, you will have the exclusive rights to use the trade mark and to authorise other people to use the trade mark, in relation to the goods or services for which the trade mark is registered.

Generally, if someone else subsequently uses an identical or a confusingly similar sign in the course of trade in relation to identical or similar goods or services without your consent, you will be able to sue him under the Trade Marks Act for the infringement of your exclusive right.

The franchising agreement should ensure that, upon its termination, the franchisee’s right to use your intellectual property similarly terminates.

Draft an indemnity clause 

Depending on the legal nature of your relationship with the franchisee, it is possible that you may be held vicariously liable for the acts or omissions of the franchisee, for example if the franchisee is considered to be your agent, in law.

One possible way to protect yourself from such liability is to provide in the contract that the franchisee is to indemnify you for any third-party claims made against you because of the franchisee’s acts or omissions.

However, this method would be ineffective in the event that the franchisee goes bankrupt.

Ensure compliance with relevant local regulatory laws

To ensure the validity of your franchising agreement, you should ensure that it complies with all relevant local regulatory laws.

For example, generally, you should ensure that your franchise agreement does not promote anti-competitive practices or the offending provisions may be rendered void by the Competition Act.

Also, generally, clauses which are in restraint of trade, such as clauses which prohibit the franchisee from carrying on a competing business, should be reasonable in scope and duration, or they may be rendered void.

While the Franchising and Licensing Association (Singapore)’s Code of Ethics is not a legally binding document, it may be useful to refer to it to get an idea of the standard of conduct expected of a franchisor.

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Although there are costs associated with setting up a franchising structure, franchising is a proven business model that has powered many brands in their expansions.

Should you require assistance in setting up a franchise, feel free to engage our corporate services offered at competitive rates. If you’re looking for legal advice on the legal issues that your franchise may encounter, please consult one of our experienced corporate lawyers.