21/08/2017
The Basics of Franchise
Franchise is a type of business model that allows a person (franchisee) to use the business name, model and/or brand of an established business (franchisor). It has become the fastest way to pe*****te markets both locally and globally. Franchising is a very popular method for people to start up a business, especially for those who wish to operate in a highly competitive industry. It entails a strategic alliance between the franchisor and franchisee Both parties enter into a contractual relationship in which a party (franchisee) is allowed to use the trade name, trademark or services of the other (franchisor) in exchange for a fee usually called royalty.
There are 2 main types of Franchise:
1. Product distribution franchise: Franchisor does not provide the entire system for the franchisor to run their business but only licences use of trademark and logo. Examples, Coca-cola.
2. Business format franchise: Here the franchisee not only uses the franchisor’s product, service and trademark, but also uses the complete method to conduct the business itself, such as the marketing plan and operations manuals. More commonly used today. Examples abound in the fast food chain industries – Kentucky Fried Chicken (KFC), Mr. Biggs, McDonalds, Orango etc.
Franchise agreements could take any of the following forms:
1. Single unit franchise – Franchisee gets the right to open only one franchise unit in a particular location.
2. Area development franchise – multiple units of franchise in an area during a specific period.
3. Master franchise – also known as sub-franchising. Under this type of arrangement, the franchisor gives more rights than an area development agreement. Apart from having the right to open and operate a certain number of units in a defined area, the franchisee in a master franchise also has the right to sell franchises to other people within the territory. This right is what is known as sub-franchises
Merits of franchise: Business expansion, source of capital for franchisor through levies, fees and royalties from the franchise; independence for the franchisee, increase in chances of business success for franchisee.
Demerits of franchise: Cost intensive, potential for loss of freedom as franchisee is not completely independent and limited time frame.
In Nigeria, there is no specific legislation governing franchise. However, there are some laws that have direct impact on franchise. Some of these are the Companies & Allied Matters Act, Trademarks Act, The Nigerian Investment Promotion Commission Act and The National Office of Technology Acquisition and Promotion (NOTAP) Act. Under the NOTAP Act, the NOTAP is mandated to register all contract and agreements entered into for the transfer of foreign technology to Nigerian parties. This technology as provided by the NOTAP Act includes trademarks, patents, and know-how. Thus, all agreements between franchisors and franchisees are required to be submitted to the NOTAP for registration in compliance with the NOTAP Act.
Credit: Osinachi Nwandem Victor: Understanding Franchise in Nigeria. https://www.linkedin.com/pulse/understanding-franchising-nigeria-osi-nwandem
