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

Last updated on April 5, 2022

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 claimant (previously known as the “plaintiff”), or by a class of persons that includes the claimant.
  3. The claimant had acted upon the false statement.
  4. The claimant 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.

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  2. Independent Directors: Who are They and What is Their Role?
  3. Board of Advisors: Who Are They and What Is Their Role?
  4. Appointing Company Directors in Singapore: Eligibility, Process etc.
  5. Managing Director vs CEO in Singapore: Roles and Obligations
  6. Guide to Directors' Remuneration in Singapore
  7. Directors' Duties in Singapore
  8. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  9. How to Remove a Director from a Company in Singapore
  10. Removal and Resignation of Company Auditor in Singapore
  11. Appointing a Company Secretary: Roles and Responsibilities
  12. Appointing an Authorised Representative for Foreign Companies in Singapore
  13. Process Agents in Singapore
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  2. How to Hold Extraordinary General Meetings (EGMs) in Singapore
  3. How to Hold a Board Meeting in Singapore
Shareholder Matters
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  2. How to Split Shares (or Stocks) in a Singapore Company
  3. 2 Ways to Remove a Singapore Company Shareholder ASAP
  4. What are Treasury Shares? Guide for Singapore Companies
  5. A Guide to Paid-Up Capital in Singapore
  6. Preparing a Register of Shareholders for a Singapore Company
  7. How to Issue Shares in a Singapore Private Company
  8. Guide to Transferring Shares in a Singapore Private Company
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  11. Shareholder Roles and Obligations in Singapore Companies
  12. Dividend Payments Guide for Singapore Business Owners
  13. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  14. How to Reduce the Share Capital of Your Singapore Company
  15. Buy-Sell Agreements: How to Write & Fund Them in Singapore
  16. Oppression of Minority Shareholders
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  3. Transfer Pricing Obligations of Singapore Companies
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  8. Essential Regulatory Compliance Guide for Singapore Companies
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  4. Singapore Corporate Tax: How to Pay, Tax Rate, Exemptions
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  2. Running a Franchise in Singapore: What To Look Out for as a Franchisee
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  4. Voluntary Suspension of Business in Singapore: How to Handle
  5. Winding Up a Singapore Company: Grounds and Procedure
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