Running a Franchise in Singapore: What To Look Out for as a Franchisee
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.
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:
- Representation of fact made by words or conduct.
- Representation made with the intention that it should be acted upon by the plaintiff, or by a class of persons which includes the plaintiff.
- The plaintiff had acted upon the false statement.
- The plaintiff suffered damage by acting upon the false statement.
- 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.
- What are Annual General Meetings (AGMs) in Singapore?
- Anti-Money Laundering Regulations and Your Business: What You Need to Know
- Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
- Dividend Payments Guide for Singapore Business Owners
- Company Audits in Singapore: Requirements and Exemptions
- Guide to Transferring Shares in a Singapore Private Company
- How to Hold Extraordinary General Meetings (EGMs) in Singapore
- How to Issue Shares in a Singapore Private Company
- How to Reduce the Share Capital of Your Singapore Company
- Legally Conducting Lucky Draws for Singapore Businesses
- Dormant Companies and Their Filing Obligations in Singapore
- How to Hold a Board Meeting in Singapore
- Can Directors be Liable for Company Debts in Singapore?
- Paid-Up Capital in Singapore: A Complete Guide (Is $1 Enough?)
- Restaurant Inspection and Food Safety Rules in Singapore
- Preparing a Register of Shareholders for a Singapore Company
- Essential Regulatory Compliance Guide for Singapore Companies
- Finding a Suitable Corporate Secretarial Firm in Singapore
- Oppression of Minority Shareholders
- Process Agents in Singapore
- Shadow Directors: Who are They and What Duties Do They Owe to the Company?
- Guide to Directors' Remuneration in Singapore
- 3 Types of Insurance Every Singapore Business Needs
- How to Change the Name of Your Singapore Company
- How to Remove a Director from a Company in Singapore
- Appointing Company Directors in Singapore: Eligibility, Process etc.
- Company Loans to Directors/Shareholders (& Vice Versa) in Singapore
- Share Transmission: What Happens If a Shareholder Dies in Singapore?
- Business Will: How to Pass on Your Business to Your Successors in Singapore
- Shareholder Rights in Singapore Private Companies
- Removal and Resignation of Company Auditor in Singapore
- Shareholder Roles and Obligations in Singapore Companies
- Creating and Registering Charges in Singapore: Guide for Companies
- How to Commence a Derivative Action on Behalf of a Company in Singapore
- Managing Director vs CEO in Singapore: Roles and Obligations
- Appointing an Authorised Representative for Foreign Companies in Singapore
- Business Partnership Disputes in Singapore: How to Resolve
- Guide to Effective Business Continuity Planning in Singapore
- Buy-Sell Agreements: How to Write & Fund Them in Singapore
- Voluntary Suspension of Business in Singapore: How to Handle
- Business Asset Sale & Disposal in Singapore: How Do They Work?
- Appointing a Company Secretary: Roles and Responsibilities
- Directors' Duties in Singapore
- Company Constitutions in Singapore and How to Draft One
- Company Memorandum and Articles of Association
- Minutes of Company Meeting in Singapore: How to Record
- Guide to Filing Financial Statements for Singapore Business Owners
- Filing Annual Returns For Your Business
- Memorandum of Understanding (MOU): Does Your Business Need One?
- Company Resolutions: What are They?
- Board Resolutions in Singapore
- Your Guide to Share Certificates in Singapore: Usage and How to Prepare
- How to Set Up a Register of Controllers
- How to Set Up a Register of Nominee Directors
- What is Withholding Tax and When to Pay It in Singapore
- Singapore Influencers: Here's How to Calculate Your Income Tax
- Corporate Tax in Singapore: How to Pay, Tax Rate, Exemptions
- When to Register for GST, How and Responsibilities after Registration
- Start-Up Tax Exemption Guide for New Singapore Companies
- Tax Investigation of Tax-Evading Business Owners in Singapore
- Small Business Accounting Services in Singapore
- Essential PDPA Compliance Guide for Singapore Businesses
- Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
- How Can Companies Dispose of Documents Containing Personal Data?
- Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
- Appointing a Data Protection Officer For Your Business: All You Need to Know
- Summary: Your Organisation's 9 Main PDPA Obligations
- Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
- GDPR Compliance in Singapore: Is it Required and How to Comply
- Is It Legal for Businesses to Ask for Your NRIC in Singapore?
- PDPA Consent Requirements: How Can Your Business Comply?
- Legal Options If Employees Breach Confidentiality in Singapore
- Your Guide to a Media Release Form in Singapore
- Insolvency: Claw-Back of Assets From Unfair Preference and Undervalued Transactions
- Striking Off a Company
- What Should a Creditor Do When a Company Becomes Insolvent?
- Dissolution of partnerships in Singapore
- Validation of Payments Made by Companies Being Wound Up
- Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
- Closing Your Singapore Business: What You Need to Settle
- How to File a Proof of Debt against a Company in Liquidation
- Winding Up a Company