Are you an aspiring entrepreneur seeking a tried-and-tested business model with a higher chance of success? Have you ever dreamed of owning your own business but felt overwhelmed by the complexities of starting a business from scratch? If so, franchising might be the perfect opportunity for you.
What is a Franchise?
Franchise is a business relationship between two parties: the franchisor and the franchisee. The franchisor, typically an established and successful business, grants the franchisee the rights to operate their business. This includes using the franchisor’s brand, trademarks, systems, and ongoing support.
How Much is the Capital in Franchising?
The total capital investment depends on the business to be franchised. It could range from as low as below PHP500,000 up to PHP10,000,000 and above.
What are the Types of a Franchise Business?
Investors have an option to franchise businesses engaged in food, services, and trading:
- Food Franchises are businesses such as restaurants, kiosks, and food carts.
- Service Franchises are those that cater to needs such as airlines, banks, computer service bureaus, law firms, plumbing repair companies, motion picture theaters, and management consulting firms.
- Trading Franchises deal with retail including convenience stores, clothes shops, and drugstores.
How to Register a Franchise Business?
To register a franchise business in the Philippines, you need to follow certain steps and comply with the requirements set by the government. Here is the general overview of the process:
Incorporation
Register a Business Entity in the Philippines. Choose a business structure, such as corporation, partnership, or sole proprietorship, and complete the necessary registration with the relevant government agencies.
- Registration with SEC: Prepare the necessary documents for registration with the SEC. This typically includes an application form, articles of incorporation, bylaws and other supporting documents as required by the SEC.
- Business Permit: Obtain Business Permit from the Local Government Unit(LGU) where your franchise will operate. This typically involves the following documents:
- Barangay Clearance
- Mayor’s Permit
- Other Permits, depending on your business type.
- Register with the Department of Trade and Industry (DTI): (Instead of SEC Registration). This is applicable to a sole-proprietorship type of business.
- Register with BIR
- For Sole Proprietorship:
- BIR FORM 1901
- Two copies of accomplished BIR Form 1901
- Birth certificate, community tax certificate, or any valid ID (such as passport and driver’s license) indicating the applicant’s name, birth date, and address
- Photocopy of Mayor’s Permit (or duly received application form for Mayor’s Permit if it’s still being processed) or DTI Certificate of Business Name Registration
- For Professionals:
- Professional Tax Receipt or Occupational Tax Receipt from the LGU
- For those with an Existing Personal:
- TIN who are registering their business: Proof of Payment of Annual Registration Fee (ARF)
- If the ARF is not yet paid:
- Accomplished BIR Form 1906 (Application for Authority to Print Receipts and Invoices)
- Final and clear sample of principal receipts or invoices
- Barangay clearance
- President’s referral (for villagers and homeowners inside subdivisions)
- Submit all the requirements to Revenue District Office
- Get the Certificate of Registration Two copies of accomplished BIR Form 0605 (Payment Form)
- For Sole Proprietorship:
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- For Foreign Corporations:
- Photocopy of License to Do Business in the Philippines and Articles of Incorporation
- For Domestic Corporations:
- Photocopy of SEC Certificate of Incorporation and Articles of Incorporation
- For Partnerships:
- Photocopy of Certificate of Recording and Articles of Partnerships
- Photocopy of Mayor’s Permit (or duly-received application form for Mayor’s Permit if it’s still being processed)
- Proof of Payment of Annual Registration Fee (ARF)
- If the ARF is not yet paid:
- Two copies of accomplished BIR Form 0605 (Payment Form)
- Accomplished BIR Form 1906 (Application for Authority to Print Receipts and Invoices)
- Final and clear sample of principal receipts or invoices
- For Foreign Corporations:
Franchise Agreement
Negotiate and sign the franchise agreement with the franchisor. This agreement will outline the rights and obligations of both parties including fees, territorial rights, training support and intellectual property use.
According to the Executive Order No. 169, otherwise known as “Strengthening the Franchising Industry for the Protection of Micro, Small and Medium Enterprises (MSMEs)”, the following terms and conditions for franchise agreements should be indicated:
- Name and description of the products or services under the franchise;
- Specific rights granted to the MSME franchisee, such as but not limited to, the right to use the mark or any other intellectual property rights duly registered with the Intellectual Property Office of the Philippines (IPOPHL);
- Full disclosure of any pre-signing, initial or recurring fees, such as but not limited to, franchise fee, promotion fee, royalty fee or any related type of fee which may be imposed on the MSME franchisee;
- Detailed responsibilities of the franchisor, which include the enumeration of the types and particulars of assistance and the submission of the franchise agreement to the DTI;
- Detailed responsibilities of the MSME franchisee;
- Non-discriminatory provisions;
- Duration of the franchise, and the terms and conditions for renewal;
- Effects of and grounds for pre-termination, termination or expiration of the franchise agreement;
- Provision on “cooling off” period, where the MSME is given the option to terminate the agreement;
- Mechanism for dispute resolution, which shall include a stipulation that parties may seek voluntary mediation under Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004; and
- Remedies of the parties in case of any violation of the terms and conditions of the franchise agreement.
Registration of the Franchise Agreement with the DTI Registry
According to the EO, the DTI shall be in charge of creating an MSME Registry of Franchise Agreements. This means the franchise agreement should be lodged with the DTI pursuant to the DTI rules.
Need further information and assistance regarding Franchise Registration? Talk to our team at Duran & Duran-Schulze Law to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
