Buying a Franchise in Colombia: Checking the Franchisor

A well-known brand does not guarantee that the company offering its franchise has the legal and financial capacity to deliver. Before joining a franchise network in Colombia, investigate your prospective contracting partner: who will sign, which entity will be responsible and what aspects of its track record need clarifying. This review does not replace an assessment of the business; it helps you understand who you will be entering into a long-term relationship with.

1. Identify the company that will take on the obligations

Ask for the company's full legal name, its tax identification number (NIT) and a recent certificate of existence and legal representation issued by the relevant chamber of commerce. Cross-check these details against the draft contract, the commercial proposal and the payment instructions. You can consult Colombia's Unified Business and Social Register (RUES) and request the relevant certificates.

Do not confuse the trading name with the company that will enter into the contract with you. Several companies may operate within the same network: one may run company-owned outlets, another sell franchises and another provide services. The experience of one does not automatically extend to the others.

Pay particular attention to:

• Identity of the contracting party: it must be clear which legal entity grants the franchise and takes on each obligation.
• The signatory's authority: check whether the legal representative's authority to enter into contracts is limited or whether approval from another corporate body is required.
• Registration status: review the renewal of the company's commercial registration and any relevant entries, without treating an up-to-date registration as a guarantee of solvency.
• Consistency across documents: ask for an explanation if the contracting company or the bank account receiving payments changes during negotiations.

If someone signs under a power of attorney, ask for a copy and check its scope. If corporate approval is required, request evidence that it has been granted before signing the contract.

2. Assess the contracting party's ability to deliver

The question is not simply whether the company exists, but whether it can fulfil the commitments it will make. Request recent financial statements with comparative figures, accompanying notes and any applicable certifications or audit reports. Have an independent accountant review them.

The review should look for an eroded equity position, recurring losses, liabilities falling due soon, significant contingent liabilities or excessive dependence on upfront payments from new franchisees. None of these factors alone establishes fraud, but each warrants further explanations and supporting documents.

Ask which entity employs or engages the team responsible for supporting the network, and what would happen if its relationship with the franchisor ended. If a newly formed company uses a corporate group's track record as a selling point, distinguish between promotional claims of backing and legally binding commitments. Membership of a group does not mean that all its companies are liable under the contract.

Where performance depends on another entity, a lawyer can assess whether that entity should also take on express obligations or provide a guarantee. Do not assume such backing exists simply because the same trading name appears in a presentation.

3. Cross-check the track record without treating warning signs as proof

Consult publicly available information on court cases and insolvency proceedings through the relevant authorities, including Colombia's Superintendence of Companies (Superintendencia de Sociedades), where appropriate. Search using the company's exact identifying details: similar names can lead to mistaken conclusions.

The existence of litigation does not prove a breach of obligations. With legal advice, review what the case concerns, its status and its potential impact. Equally, finding no results does not establish that the company has no potential liabilities.

Supplement official records with conversations with current and former franchisees. To keep the focus on the contracting party, ask:

• Was the entity that signed the contract the same one that fulfilled its obligations?
• Were there changes in the company involved or requests to pay third parties?
• Who responded when disagreements arose?
• Were important responses documented?

Ask the franchisor for its explanation of any inconsistencies. Record each finding, the explanation received and any evidence still outstanding. Avoid both accepting accounts as conclusive proof and dismissing repeated complaints without investigating them.

4. Turn your findings into conditions for signing

In Colombia, a franchise agreement is an atypical contract: there is no specific law comprehensively governing this type of arrangement. The general rules of the Commercial Code and Civil Code apply, alongside other rules relevant to the subject matter. Good faith governs both the pre-contractual stage and the performance of the contract.

Nor is there a specific general obligation to provide a franchise disclosure document with legally prescribed content and delivery deadlines. You can request an information pack, but it should not be presented as a mandatory statutory document. The absence of such a regime does not remove general duties or make the contract your only protection.

Ask for decisive answers to be incorporated into the contract or signed annexes. If approvals, financial documents or explanations of potential liabilities are missing, postpone signing until these matters are resolved. Do not substitute a verbal promise for outstanding evidence.

In practice: put together a file covering the franchisor's identity, authority, financial position and track record. Sign when you know which company is responsible, what capacity it has to deliver and what verifiable commitments it is making.