Potential Franchisor FAQ

The process of franchising a business is a time consuming project as there are many legal requirements and financial, structural and strategic considerations so ideally it should be handled by professional franchise consultants.  Click here for contact details of franchise consultant members

 

The Franchise Association of South Africa sells a publication called How to franchise your business which deals with every aspect of the entire process of franchising a business – the publication is available as an ebook

From time to time especially during franchise expo’s, lectures are offered on the process of franchising a business so please refer to www.ife.co.za for updates.

Ideally a concept or business idea cannot be franchised as it is imperative to test the product or service in the market place to measure consumer demand and response to the product or service.  There are a myriad of requirements to be considered and addressed in the process of franchising a business for example financial investment requirements and return on investment information, set-up costs, location or site requirements, equipment requirements and specifications, franchisee profile, prices and services, procedures and operational requirements and the list goes on.  If a business owner has an existing successful business with a financial track record and is considering expanding by way of the franchise model it is far more conducive to establishing a successful franchise company than an idea in someone’s mind.

There are many legal requirements for franchisors in South Arica but it depends on which industry the franchise operates in for example:-

  • Register the company with the Companies and Intellectual Property Commission – CIPC
  • Department of Labour – register in accordance with the Compensation for Occupational Injuries and Diseases Act
  • Register with SARS for VAT, PAYE and UIF as well as SDL

 

Comply with the

  • Consumer Protection Act’s Regulations with specific reference to the requirements for franchise agreements and disclosure documents.
  • Trademark law
  • Copyright Act
  • Anti-Smoking laws
  • Labour Law (Industrial Relations Act)
  • Liquor Act
  • Property Law
  • Petroleum Products Act
  • Second-hand Goods Act
  • National Credit Act

 

This list is not exhaustive and it is recommended that a potential franchisor consult with an experienced franchise attorney – Click here for contact details of franchise attorney members

The investment requirements to franchise a business is quite steep – there is a long list of legal requirements for franchisors in South Africa – depending on the sector that the business operates in.  For example, the trademarks of the business and often if applicable, patents have to be registered in the relevant different classes, the franchise agreement and disclosure documents should be drafted by an experienced franchise attorney, the operations or procedural and training manual should be developed by a professional franchise consultant who should also develop the structure of the franchise together with the owner/s.

The franchisor should also have financial resources to advertise and the market the franchise and invest in the ongoing development for the brand especially in the early stages.

 

It is recommended that a potential franchisor consults with the various specialists mentioned here to determine an investment budget before they embark on franchising their business.

Trade Marks

A trade mark is any mark, word(s), sign, device or logo that distinguishes one’s goods and/or services from that of other traders. As time passes, a trade mark can appreciate in value and as a company’s reputation grows, so too does its trade mark value.

 

Trade marks are territorial in nature which makes it possible for a person to adopt a foreign trade mark from another country and use it in South Africa, provided that the trade mark is not well known in South Africa. Trade marks are classified into goods and services and South Africa has a mono-class filing system whereas other countries allow multi-class filings.

 

Before applying to register a trade mark, a pre-filing search of the Trade Marks register is recommended in order to ascertain whether the mark is available and that there are no identical or similar third party marks on the register which would pose a threat to obtaining registration.

 

Whether to conduct a search is a question of management of risk – if one has used the mark for some time and is sure that there are no third parties are using an identical or similar mark, an availability search may not be necessary in the circumstances.

 

The registration process commences by filing an application in the relevant class/es. The Registrar examines the application within eight to twelve months to ascertain whether it complies with the formalities and requirements and the application is then either accepted, accepted subject to certain conditions, or provisionally refused.

 

Once the application has been accepted and assuming there are no conditions to acceptance, the mark will be advertised for opposition purposes in the Patent and Trade Mark Journal whereby third parties generally have three months to object to the registration of the application.

 

Assuming that no third parties wish to oppose the application(s), the trade mark is registered and the registration certificate(s) issued. The registration certificate takes about six months to be issued. Protection is granted from date of application.
During the application period, one can use the ™ symbol next to the mark to show that there is a trade mark application pending. This then changes on registration, to the ® symbol in order to notify the public that it is a registered trade mark.

 

A trade mark’s lifespan can be indefinite, provided that the mark is being used and that it is renewed every 10 years.

 

While common law rights can be acquired through use of a trade mark, the advantages of registration are considerable. Some of the benefits of registering a trade mark include protecting a company’s name, logo and brands, preventing others from using or registering the trade mark, and it provides an easy, quick and cost-effective remedy which prevents third parties from using the same or similar marks. In addition, if needed, the trade mark proprietor is more likely to attract licensees.

 

Patents

A patent is a certificate issued by the state, granting the patentee a monopoly in an invention for a period of twenty years.  Naturally, this legal monopoly could prove to be of cardinal importance in gaining and maintaining a commercial foothold in the market.  One should be cognizant of the fact that patents are limited to the specific territories (i.e. countries or regions) in which they are granted and patent protection must be obtained separately in every country or region in which protection is desired.  A “worldwide patent” simply does not exist.

 

Any invention, which may include an article, apparatus, product, device, process, method or the like, is patentable in general, if it satisfies three basic requirements, namely if it is:

  • novel;
  • involves an inventive step; and
  • useful in trade, industry or agriculture.

It is only the inventor who can apply for a patent, or another person or entity that has acquired from the inventor the right to do so.

 

Obtaining a patent in South Africa is generally a two-fold process, commencing with the filing of a provisional patent application at the South African Patent Office.  The date on which the provisional patent application is filed a the Patent Office is called the “priority date”.  Once the provisional patent application has been filed, the invention can be disclosed to the public.  It is of the utmost importance that the invention is not disclosed to the public before a provisional patent application has been filed as an inventor may destroy the novelty of his/her own invention.  Within twelve months of having filed the provisional patent application same has to be followed up with the filing of a complete patent application in each and every country or region where patent protection is sought.  Alternatively, the provisional patent application may be followed up with a patent application filed through the Patent Cooperation Treaty (“PCT application”).  A PCT application provides an applicant with an additional eighteen months to decide in which countries or regions a complete patent application should be filed.

 

For further information contact Kevin Dam of Kisch IP
KevinD@kisch-ip.com
+27 11 324 3025

 

 Existing Franchisor FAQ

Finding the right location for a business is one of the most crucial decisions and it is a good idea to consult with various business specialists before a lease is signed.  In many cases the establishment costs of a franchised outlet require a large investment and taking various steps to mitigate the risk and safeguard both the reputation of the brand and the franchisee’s investment is highly recommended.

Fernridge Consulting offers demographic data and other relevant information that could assist a franchisor in making the right decisions when considering a potential site – Fenridge consulting
Another company that offers very useful information is Urban Studies
The company has specialised in the retail sector with focus on shopping centre footprints and other relevant data for many years.

Franchisors should cultivate a strong working relationship with landlords to build trust and transparent business dealings.  It is recommended that franchisors should meet regularly with decision makers at all of the large retail property groups and their letting agents.  Having frequent discussions and inviting landlords to pertinent events taking place at brands can only foster trust and goodwill which is crucial to a good relationship with landlords.

 

Dealing with the South African Council of Shopping Centres and attending relevant events could also be helpful in building a contact list and networking opportunities with landlords – here is the appropriate link  https://sacsc.co.za/

There are many opportunities for franchise companies to advertise in order to secure franchisees:-

  • Apply to the Franchise Association of South Africa for accredited membership status as the Association offers free marketing opportunities to members by way of its weekly newsflash that goes out to thousands of recipients, it gives a free full colour quarter page advert in its annual franchise manual which is distributed at expo’s, seminars and to stakeholders, it lists accredited franchise companies on its website and offers free speaking or presentation opportunities to franchisors at its seminars and expo’s.
  • List opportunities available on franchise websites and the websites of franchise publications
  • Exhibit at franchise expo’s and participate in events – go to the following website to monitor exhibition opportunities
  • Have exploratory seminars or events at the franchise company’s offices on a week day evening or a weekend morning to take potential franchisees through the opportunities your franchise has to offer.

Franchisors should meet with decision makers at funders to explain the franchise concept to them and to answer any questions funders may have about the franchise.  Should they get an application for funding from your franchise in future, hopefully the funders know about your brand and can contact you about questions they may have.

 

These contacts should be maintained and regular meetings should be scheduled with the head of franchising at each of the main banks in South Africa as well as development funders like Business Partners, Masisizane Fund, the National Empowerment Fund and sefa.

Criteria for funding applications, vary from banks to development funders but generally funders rate the following factors:-

  • Who is the potential franchisee – does he/she have business acumen, are they suited to the franchise, are they healthy individuals, do they have the required surety for the loan, do they have an adequate deposit, can they afford the business and sustain it until it delivers a profit, how well is the business plan developed including the projected financial information
  • Issues regarding the franchisor – has the franchisor been accredited by the Franchise Association of South Africa, how many outlets did the franchise company close or relocate, what were the reasons for the closures or relocations, does the franchisor offer a special support program for distressed franchised outlets, does the franchisor employ suitably qualified support personnel, what is the financial track record of the franchise, in which business category does it operate, how long has the franchise been in operation, projected return on investment, investment requirements, list of assets/equipment required and how it would be deployed in the business.

 

The above information is merely a guide and not an exhaustive list of criteria funders would apply in the funding application. Criteria would vary from funder to funder and bank to bank.

If your question has not been addressed under this section please send us your question in the message box below.

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