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.

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. What is Withholding Tax and When to Pay It in Singapore
  5. The Business Owner’s Guide to Dividend Payments in Singapore
  6. Singapore Influencers: Here's How to Calculate Your Income Tax
  7. Company Audits in Singapore: Requirements and Exemptions
  8. How to Transfer Shares in a Singapore Private Company: The Essential Guide
  9. How to Hold an Extraordinary General Meeting (EGM) in Singapore
  10. How to Issue Shares in a Singapore Private Company
  11. How to Reduce the Share Capital of Your Singapore Company
  12. How Businesses Can Legally Conduct Lucky Draws in Singapore
  13. Corporate Tax in Singapore: How to Pay, Tax Rate and Tax Exemptions
  14. Essential Regulatory Compliance Guide for Singapore Companies
  15. Finding a Suitable Corporate Secretarial Firm in Singapore
  16. Oppression of Minority Shareholders
  17. 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. Board Resolutions in Singapore
  8. Company Memorandum and Articles of Association
  9. 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. Appointing a Company Secretary: Roles and Responsibilities
  6. Directors' Duties in Singapore
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. Can I Display Advertisements at Public Places?
  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