The franchise agreement is a legal and commercial tool used for business expansion. This type of contract is used by companies seeking to expand their brand and business model by opening new units in different regions of the country.
In this article, we will explain in detail the franchise contract in Colombia, including the current regulations on the subject.
What is a Franchise Agreement?
A franchise agreement is a legal agreement between two parties: the franchisor and the franchisee. The franchisor is the company that owns the brand and business model, while the franchisee is the person or company that acquires the right to use the brand and business model to open a franchise unit in a new location.
The franchise agreement establishes the terms and conditions under which the franchisee may use the franchisor’s brand and business model. These terms include, among others, the duration of the contract, the rights and obligations of the franchisee and the franchisor, the royalties to be paid by the franchisee to the franchisor, and the advertising and marketing policies to be followed.
Current and Applicable Regulations on Franchise Agreements in Colombia
In Colombia, the franchise contract is regulated by Law 1429 of 2010, which establishes the legal requirements that must be met for the creation and operation of franchises in the country.
In addition, Decree 4886 of 2011 establishes the obligations that franchisors and franchisees must comply with in relation to the information they must provide prior to the signing of the contract.
Law 1429 of 2010 establishes that the franchise agreement must be in writing and must contain a detailed description of the business model, the rights and obligations of the franchisee and the franchisor, the duration of the agreement, the renewal and termination conditions, the royalties and payments to be made, and the advertising and marketing policy to be followed.
In addition, Law 1429 of 2010 establishes that prior to signing the contract, the franchisor must provide the franchisee with detailed information about the brand, the business model, the costs associated with opening and operating the franchise, and any other information relevant to the franchisee’s decision making.
Step by Step of the Franchise Process in Colombia
Franchising in Colombia can be a complex process, but with the right advice and proper planning, it can be a simpler process.
The following are the steps required to obtain a franchise in Colombia:
Franchise research:
The first step is to research the franchise you want to purchase. It is important to investigate the brand, the business model, the company’s background and its capacity for expansion. The company’s statistics and financial reports should also be reviewed, as well as the costs and benefits of the franchise.
Financial planning:
Once you have selected the franchise, you must evaluate your financial capacity to acquire it. You must ensure that you have sufficient capital to pay the franchise fee, initial set-up costs, operating costs and working capital.
Contract negotiation and review:
Before signing any contract, it is important to carefully review all terms and conditions. This includes reviewing the rights and obligations of both parties, operating rules, contract duration, renewal and termination clauses.
Registration before the Chamber of Commerce:
Once the contract has been signed, the franchisor must register with the Chamber of Commerce and pay a registration fee. The Chamber of Commerce will register the contract and make it public so that potential franchisees can review it.
Establishment of the franchise:
After registration, the franchisee can establish the franchise. It must follow the rules and procedures established by the franchisor and must operate the franchise in accordance with the terms of the agreement.
Requirements, costs and duration
The requirements to obtain a franchise in Colombia include registration with the Chamber of Commerce and review of the contract.
Franchise costs vary by brand and business model. Some franchisors may require a franchise fee, a percentage of sales or a royalty fee.
The duration of the franchise contract is usually five to ten years, depending on the agreement between the franchisor and the franchisee.
Risks and Benefits
Risks associated with acquiring a franchise include the possibility of not succeeding in operating the franchise, dependence on the franchisor and loss of investment.
However, benefits can include the opportunity to operate a business with an established brand, access to the franchisor’s expertise and resources, and the potential for greater profitability.
Acquiring a franchise from another country to operate in Colombia
It is possible to acquire a franchise from another country to operate in Colombia. However, it is important to research and understand the laws and regulations applicable in Colombia and in the country of origin of the franchise.
In addition, the franchisor must be willing to adapt to Colombian laws and regulations and local market conditions. Additional costs associated with importing the products and adapting the business model to local standards and preferences must also be taken into account.
In general terms, the steps and requirements for acquiring a foreign franchise in Colombia are similar to those for acquiring a local franchise.
However, there are some additional considerations to take into account, such as the need to obtain import permits and certifications, as well as the adaptation of the business model to local conditions.
It is important to note that acquiring a foreign franchise can offer a number of advantages, such as the possibility of offering innovative and high quality products and services that are not available in the local market.
In addition, the franchisor can provide support in areas such as marketing, advertising, training and product development, which can contribute to the success of the business.
Conclusion
In conclusion, franchising in Colombia can be a complex process, but with proper planning and the right advice, it can be a fairly straightforward process.
It is important to research and understand the laws and regulations applicable in Colombia, as well as the requirements and costs associated with acquiring a franchise.
The risks and benefits associated with acquiring a franchise, as well as the possibility of acquiring a foreign franchise to operate in Colombia, must also be taken into account.
In general, acquiring a franchise can be an attractive option for those looking to start a business with an established brand and the support of an experienced franchisor.
The franchise agreement is an important tool for business expansion in Colombia.
This type of contract is used to allow companies to expand their brand and business model by opening new units in different regions of the country.
The current and valid regulations on franchise agreements in Colombia are established by Law 1429 of 2010 and Decree 4886 of 2011.
It is important that companies wishing to use the franchise contract in Colombia comply with these legal requirements and provide detailed information to franchisees prior to signing the contract.
References
Law 1429 of 2010. Available at: https://www.funcionpublica.gov.co/eva/gestornormativo/norma.php?i=41762
Decree 4886 of 2011. Available at: https://www.funcionpublica.gov.co/eva/gestornormativo/norma.php?i=42787
Chamber of Commerce of Bogotá. Practical guide to franchising. Available at: https://www.ccb.org.co/Clusters-y-Redes/Red-de-franquicias/Documentos/Guia-Practica-de-Franquicias.pdf
Ministry of Commerce, Industry and Tourism. Information about franchises in Colombia. Available at: https://www.mincit.gov.co/ministerio/politicas-planes-y-programas/programas/franquicias
Colombian Franchise Association. Information about franchises in Colombia. Available at: https://www.franquiciascolombia.co/
Ministry of Commerce, Industry and Tourism of Colombia. (2022). Franchise Agreement. Retrieved from https://www.mincit.gov.co/mincomercio-exterior/comercio-internacional/franquicias/contrato-de-franquicia
Superintendence of Industry and Commerce. (2022). Franchises. Retrieved from https://www.sic.gov.co/franquicias
ProColombia. (2022). Franchises. Retrieved from https://procolombia.co/negocios/franquicias
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