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

Last updated on July 17, 2019

business man with may franchise start-ups.

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 law 

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

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 competitive 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.

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.

Compliance
  1. Annual General Meetings (AGMs) in Singapore: What are They?
  2. Anti-Money Laundering Regulations and Your Business: What You Need to Know
  3. Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
  4. The Business Owner’s Guide to Dividend Payments in Singapore
  5. Company Audits in Singapore: Requirements and Exemptions
  6. How to Transfer Shares in a Singapore Private Company: The Essential Guide
  7. How to Hold an Extraordinary General Meeting (EGM) in Singapore
  8. How to Issue Shares in a Singapore Private Company
  9. How to Reduce the Share Capital of Your Singapore Company
  10. How Businesses Can Legally Conduct Lucky Draws in Singapore
  11. Dormant Companies and Their Filing Obligations in Singapore
  12. Essential Regulatory Compliance Guide for Singapore Companies
  13. Finding a Suitable Corporate Secretarial Firm in Singapore
  14. Oppression of Minority Shareholders
  15. Process Agents in Singapore
Company Documents
  1. Company Constitution in Singapore: What It is and How to Draft One
  2. How to Set Up a Register of Controllers
  3. How to Set Up a Register of Nominee Directors
  4. Memorandum of Understanding (MOU): Does Your Business Need One?
  5. Minutes of Company Meeting in Singapore: How to Record
  6. Company Resolutions: What are They?
  7. Company Memorandum and Articles of Association
  8. Filing Annual Returns For Your Business
Company Management
  1. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  2. Director's Remuneration: When Can Company Directors be Remunerated For Their Services?
  3. How to Remove a Director from a Company in Singapore
  4. Appointing Company Directors in Singapore: Eligibility, Process etc.
  5. Company Loans to Directors/Shareholders (& Vice Versa) in Singapore
  6. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  7. Business Will: How to Pass on Your Business to Your Successors in Singapore
  8. Shareholder Rights in Singapore Private Companies
  9. Appointing a Company Secretary: Roles and Responsibilities
  10. Directors' Duties in Singapore
Tax and Accounting
  1. What is Withholding Tax and When to Pay It in Singapore
  2. Singapore Influencers: Here's How to Calculate Your Income Tax
  3. Corporate Tax in Singapore: How to Pay, Tax Rate and Tax Exemptions
  4. When to Register for GST, How and Responsibilities after Registration
Data Protection
  1. Essential PDPA Compliance Guide for Singapore Businesses
  2. Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
  3. How Can Companies Dispose of Documents Containing Personal Data?
  4. Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
  5. Appointing a Data Protection Officer For Your Business: All You Need to Know
  6. Summary: Your Organisation's 9 Main Obligations under the Personal Data Protection Act
  7. Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
  8. GDPR Compliance in Singapore: Is it Required and How to Comply
  9. Drafting a Comprehensive Privacy Policy For Your Singapore Website
  10. Is It Legal for Businesses to Ask for Your NRIC in Singapore?
  11. PDPA Consent Requirements: How Can Your Business Comply?
Marketing
  1. How Can You Comply with Singapore Law When Sending Email Newsletters?
  2. Outdoor Advertising: How to Legally Display Public Ads in Singapore
  3. A legal guide to drafting a social media policy for your company
  4. Dealing with Defamation of Your Business: Can You Sue?
Franchising
  1. Starting a Franchise in Singapore: What Franchisors Should Look Out For
  2. Running a Franchise in Singapore: What To Look Out for as a Franchisee
Debt Restructuring
  1. Informal Debt Restructuring and Workout in Singapore
  2. What is a Scheme of Arrangement, How it Works and How to Apply for One
  3. Judicial Management: What is It and How Does it Work?
Ending a Business
  1. Insolvency: Claw-back of Assets from Unfair Preference and Undervalue Transactions
  2. Striking Off a Company
  3. What Should a Creditor Do When a Company Becomes Insolvent?
  4. Dissolution of partnerships in Singapore
  5. Validation of Payments Made by Companies Being Wound Up
  6. Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
  7. Are You Closing Your Singapore Business? Have You Settled All of the Following?
  8. How to File a Proof of Debt against a Company in Liquidation
  9. Winding Up a Company