How is the franchise agreement regulated under Honduran law?

How is the franchise agreement regulated under Honduran law?

According to the Honduran laws, the franchise agreement (Franchising) is an atypical contract not governed by the Commercial Code, but that can perfectly be held in our country because the Code of Commerce provides that “the parties are free to determine the content of contracts within the limits imposed by Law. They can also enter into contracts that do not correspond to the types fixed in the Commercial Code, provided that the parties pursue interests worthy of legal protection.”

The franchise agreement is a commercial contract, not being specially regulated in the Commercial Code shall be governed by the general rules and stipulations of the parties, and as they may be remiss, for provisions that may be applied by analogy of contracts regulated in this ordinance or in the Civil Code.

In our country the figure of franchising has developed considerably, especially in the area of fast foods and every day we see more businesses operating under franchise agreements, as well as local companies that have developed and grown substantially through Franchising.

The word “franchise” is synonymous with privilege. A rudimentary form of franchise arose in the middle Ages in Europe, when the Catholic Church granted certain land lords authorization to act on its behalf, collecting taxes owed to the Church.

The actual commercial franchise began in the nineteenth century in the United States, before the Civil War, circa 1850, when the Singer Sewing Machine Company, based in Stamford, Connecticut, decided to grant a number of franchises to independent traders, interested in marketing their products. We also see that in 1898, General Motors also adopted franchising as a method of expanding its distribution network, in 1899, Coca Cola began to grant franchises for bottling their product and we could mention many companies worldwide that have developed and expanded through franchising.

Franchising is the most effective tool for the expansion of successful small businesses, mainly because it is directed to channel through the use of entrepreneurs trained by the franchisor, products or services sold at retail. – 1954 gave place to the fact which gave a real boom to the figure of franchise, and was its adoption by the company McDonald’s, as a means to expand its system to quick-service meals.

Concept and characteristics

Franchising is a bilateral contract whereby the franchisor allows the franchisee to sell a certain product or service under its brand and symbol, upon payment of an entrance fee or royalties, or both. The franchise business is also a method of delivery of instruction to operate a proven business.

Important features required in a Franchise Agreement

–    Independence of the parties, each party is legally and financially independent of the other;
–    Cooperation, there is close collaboration between the parties, whereby the Franchisee should not only use the mark and logos of franchisor but also follow his instructions;
–    Permanency of the relationship, it is a continuous relationship or chain of title.
–    With uniform format:  contracts are made on provisions previously established by the franchisor, with clauses that one of the Parties presents to the other for the execution of the contract. There is freedom of contract, but no true freedom in hiring, as the trading margin is small.
–    Obligations of the Franchisor: Franchisor has three main obligations are to provide the product or service of the franchise, franchisee training and ongoing assistance.
–    Obligations of the franchisee: provide human resources, capital and continue with the instructions of the franchisor, the franchisee is who bears the risk of the company, acting in its own name and its own risk.

Basic Elements of a Franchise Agreement:

–    Trademark License, there must be ownership of a trademark on a product or service, whose license is granted to the franchisee accompanied by a set of rules regarding the manner in which the franchisee must act in the performance of their activities.
–    Transfer of know-how, is the obligation to train the franchisee to conduct the business and the organization of work,
–    Royalties, Franchisee usually must pay a fixed sum of money to the franchisor at the beginning of the relationship and a royalty during the course of it.
–    Franchise Operator: Essential for being the franchise agreement of a personal nature, in which the individual franchise operator is essential, even a society.
–    Territory, establishing a performance area for the franchisee, in which the business develops.
–    Operating Method focuses on an Operating Manual that sets the modes of cooperation and interaction between the franchisor and the franchisee.

Franchisors who will grant a franchise abroad, should consider the following points:

– Protection of trademarks
– Adaptation of the franchise to the local business laws and regulations
– Laws relating to the import of raw materials and finished products
– Exchange rate Legislation
– Labor legislation
– Legislation on leases
– Legislation on real property
– Tax legislation
– Laws against monopoly and unfair competition
– Decide on the applicable law in case of conflict

This article has highlighted the most important aspects of the Honduran law regarding franchising. Do not hesitate to contact us, we will be able to help you with a team a professional experts.

CLARIBEL MEDINA
Partner
CENTRAL LAW Honduras
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