Running a Franchise in Singapore: What To Look Out for as a Franchisee

Last updated on January 18, 2019

business woman running global franchise.

When you buy a franchise, what you are really buying is its intellectual property e.g. a licence to use its trade-mark and the franchisor’s know-how, among other intellectual property rights.

As there are currently no specific franchising laws in Singapore which require a franchisor to make any specific disclosures about the franchise, it is important that you conduct your own due diligence and find out as much as you can about the franchise as possible.

As the franchisee, you are likely to be in a weaker bargaining position than the franchisor. Therefore, you will want to make sure that the franchise terms are fair to you.

Here are some things to take note of.

Payment of Royalties

When making royalty payments to a foreign franchisor who is not considered to be “resident in Singapore” as defined by the Income Tax Act, you are liable to pay withholding tax to the Inland Revenue Authority of Singapore (IRAS). Failure to do so on time can attract fines.

You can read more about paying withholding tax in our other article.

Non-Competition Clauses

The franchisor may include non-competition clauses in the franchising agreement that may operate both during and after the duration of the franchising agreement. Make sure to read these carefully. These non-competition clauses may be void if they are found to be unreasonable in scope and duration.

You can read more about non-competition clauses in our other article.

Legal Actions against the Franchisor for False Statements/Misrepresentations

Because the franchisor will know much more about the franchise than you, there will be instances where you have to rely on the representations of the franchisor. If there are misrepresentations, you may be able to bring an action for tort of deceit. Generally, these are the elements of the tort of deceit:

  1. Representation of fact made by words or conduct.
  2. Representation made with the intention that it should be acted upon by the plaintiff, or by a class of persons which includes the plaintiff.
  3. The plaintiff had acted upon the false statement.
  4. The plaintiff suffered damage by acting upon the false statement.
  5. The representation was made with knowledge that it was false; it was wilfully false, or at least made in the absence of any genuine belief that it was true.

Alternatively, it is also possible to bring an action under section 2(1) of the Misrepresentation Act.

Termination of the Franchising Agreement

The franchising agreement should make provisions for the termination of the franchising relationship. Make sure to read and understand those provisions. As the franchising agreement is essentially a contract, the means of “getting out” of the franchising agreement is largely governed by contract law.

Where the franchisor has breached a term of the franchising agreement, that by itself does not give you the right to terminate the agreement unless:

  • The franchisor breached a term of the contract which was intended by both parties to be so important that any breach of it would entitle you to terminate the contract
    • For example, the case The Best Source Restaurant Pte Ltd v Wan Chai Capital Holdings Pte Ltd involved a franchising agreement where the franchise business was a restaurant. The franchisor breached the contract by failing to provide the franchisee with adequate recipes. The court found that it was the common intention of both franchisor and franchisee that the franchisor’s obligation to provide the franchisee with full details as to how to run the business, was an important one. Hence, when the franchisor breached that obligation, the franchisee was entitled to terminate the contract.
  • The franchisor breached a term such that you were deprived of substantially the whole benefit which it was intended that you should obtain from the franchising agreement

You probably take on a franchise so that you would not have to spend the time and money to build your own brand and operations. Read the contract carefully to know what you are getting yourself into. For legal advice on the legal issues that your franchise may encounter, please consult one of our experienced corporate lawyers.

Appointment and Removal of Company Officers and Other Key Personnel
  1. Appointing Company Directors in Singapore: Eligibility, Process etc.
  2. Managing Director vs CEO in Singapore: Roles and Obligations
  3. Guide to Directors' Remuneration in Singapore
  4. Directors' Duties in Singapore
  5. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  6. How to Remove a Director from a Company in Singapore
  7. Removal and Resignation of Company Auditor in Singapore
  8. Appointing a Company Secretary: Roles and Responsibilities
  9. Appointing an Authorised Representative for Foreign Companies in Singapore
  10. Process Agents in Singapore
Holding Meetings
  1. What are Annual General Meetings (AGMs) in Singapore?
  2. How to Hold Extraordinary General Meetings (EGMs) in Singapore
  3. How to Hold a Board Meeting in Singapore
Shareholder Matters
  1. 2 Ways to Remove a Singapore Company Shareholder ASAP
  2. Guide to Paid-Up Capital in Singapore (Is $1 Enough?)
  3. Preparing a Register of Shareholders for a Singapore Company
  4. How to Issue Shares in a Singapore Private Company
  5. Guide to Transferring Shares in a Singapore Private Company
  6. Your Guide to Share Certificates in Singapore: Usage and How to Prepare
  7. Shareholder Rights in Singapore Private Companies
  8. Shareholder Roles and Obligations in Singapore Companies
  9. Dividend Payments Guide for Singapore Business Owners
  10. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  11. How to Reduce the Share Capital of Your Singapore Company
  12. Buy-Sell Agreements: How to Write & Fund Them in Singapore
  13. Oppression of Minority Shareholders
Compliance
  1. Essential Regulatory Compliance Guide for Singapore Companies
  2. Dormant Companies and Their Filing Obligations in Singapore
  3. Anti-Money Laundering Regulations and Your Business: What You Need to Know
  4. Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
  5. Legally Conducting Lucky Draws for Singapore Businesses
  6. Restaurant Inspection and Food Safety Rules in Singapore
Company Management
  1. Does Your Company Need a Legal Team (In-House Counsel)?
  2. Acqui-Hiring of Singapore Companies: How Does It Work?
  3. How to Change the Name of Your Singapore Company
  4. Can Directors be Liable for Company Debts in Singapore?
  5. Company Loans to Directors/Shareholders in Singapore
  6. 3 Types of Insurance Every Singapore Business Needs
  7. Creating and Registering Charges in Singapore: Guide for Companies
  8. Guide to Effective Business Continuity Planning in Singapore
  9. Business Asset Sale & Disposal in Singapore: How Do They Work?
  10. Business Partnership Disputes in Singapore: How to Resolve
  11. How to Commence a Derivative Action on Behalf of a Company in Singapore
  12. Business Will: How to Pass on Your Business to Your Successors in Singapore
Company Documents
  1. Record-Keeping Requirements for Singapore Companies
  2. Company Constitutions in Singapore and How to Draft One
  3. Company Memorandum and Articles of Association
  4. Company Resolutions: What are They?
  5. Board Resolutions in Singapore
  6. Minutes of Company Meeting in Singapore: How to Record
  7. How to Set Up a Register of Controllers
  8. How to Set Up a Register of Nominee Directors
  9. Guide to Filing Financial Statements for Singapore Business Owners
  10. Filing Annual Returns For Your Business
Tax, Accounting and Audit Matters
  1. Singapore Corporate Tax: How to Pay, Tax Rate, Exemptions
  2. Start-Up Tax Exemption Guide for New Singapore Companies
  3. GST Registration: Requirements and Procedure in Singapore
  4. What is Withholding Tax and When to Pay It in Singapore
  5. Singapore Influencers: Here's How to Calculate Your Income Tax
  6. Tax Investigation of Tax-Evading Business Owners in Singapore
  7. Small Business Accounting Services in Singapore
  8. Company Audits in Singapore: Requirements and Exemptions
Data Protection
  1. Suspect a PDPA Data Breach? Here's What to Do Next
  2. Must You Notify PDPC About a Data Breach in Your Business?
  3. Summary: Your Organisation's 10 Main PDPA Obligations
  4. Essential PDPA Compliance Guide for Singapore Businesses
  5. PDPA Consent Requirements: How Can Your Business Comply?
  6. Is It Legal for Businesses to Ask for Your NRIC in Singapore?
  7. Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
  8. Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
  9. Drafting a Comprehensive Privacy Policy For Your Singapore Website
  10. GDPR Compliance in Singapore: Is it Required and How to Comply
  11. Appointing a Data Protection Officer For Your Business: All You Need to Know
  12. How Can Companies Dispose of Documents Containing Personal Data?
  13. Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
  14. How to Legally Install CCTVs for Home/Business Use in Singapore
  15. Is Web Scraping or Crawling Legal in Singapore?
  16. Legal Options If Employees Breach Confidentiality in Singapore
Marketing
  1. Your Guide to E-commerce Website Terms of Service in Singapore
  2. Dealing with Defamation of Your Business: Can You Sue?
  3. Sending Email Newsletters That Comply With Singapore Law
  4. A legal guide to drafting a social media policy for your company
  5. Your Guide to a Media Release Form in Singapore
  6. Your Guide to an Influencer Marketing Agreement in Singapore
  7. Outdoor Advertising: How to Legally Display Public Ads in Singapore
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. What is Judicial Management and How It Works in Singapore
  2. Schemes of Arrangement: How They Work and How to Apply
  3. Informal Debt Restructuring and Workout in Singapore
Ending a Business
  1. Claw-Back of Assets From Unfair Preference and Undervalued Transactions
  2. Should You Save or Close Your Zombie Company in Singapore?
  3. Voluntary Suspension of Business in Singapore: How to Handle
  4. Winding Up a Singapore Company: Grounds and Procedure
  5. Closing Your Singapore Business: What You Need to Settle
  6. Striking Off a Company
  7. Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
  8. Dissolution of partnerships in Singapore
  9. What Should a Creditor Do When a Company Becomes Insolvent?
  10. How to File a Proof of Debt Against a Company in Liquidation
  11. Validation of Payments Made by Companies Being Wound Up