Buying a franchise in Colombia: reviewing confidentiality terms

Before showing you its manuals or processes, a franchisor may ask you to sign a confidentiality agreement. This is a reasonable precaution in franchising, but it should not prevent you from assessing the purchase with your advisers. The aim is to protect confidential information without turning a preliminary review into a commitment to invest, a restriction on your ability to work or a source of penalties whose potential impact is difficult to assess.

1. Understand what Colombian law protects

In Colombia, franchising is classed as an ‘atypical’ contract: there is no specific law comprehensively governing the relationship, nor a general requirement to provide a franchise disclosure document with prescribed contents and delivery deadlines. The general provisions of the Commercial Code and Civil Code apply, including the duty of good faith in contract negotiations and performance.

Confidentiality also has a relevant legal framework in Andean Community Decision 486, which protects trade secrets. To qualify for that protection, information must be secret, have commercial value because it is secret and have been subject to reasonable measures to keep it confidential. Simply labelling a document ‘secret’ is not enough.

An agreement may impose contractual obligations covering a broader range of confidential information, but it is worth distinguishing this agreed confidentiality from the legal protection afforded to trade secrets. The agreement must also comply with applicable mandatory rules.

Signing a confidentiality agreement does not mean committing to buy the franchise. Ask for the document to state its purpose expressly: to assess a potential investment, without any commitment to enter into the final contract or to negotiate exclusively, unless exclusivity is agreed separately and with a clear understanding of its implications.

2. Define the information covered and its permitted uses

A definition such as ‘everything directly or indirectly related to the brand’ makes it difficult to know what you may do. Ask for identifiable categories: manuals, recipes, operating parameters, non-public commercial terms or financial documents provided for the assessment.

The agreement should specify how confidential information is identified, including information disclosed during meetings or demonstrations. For important verbal disclosures, you can agree that written confirmation will follow.

Negotiate exclusions for information that:

• Was already public, without any breach by the recipient.
• You lawfully knew before receiving it.
• You obtain lawfully from a third party without a duty of confidentiality.
• You develop independently, without using the information received.

Keep evidence whenever you rely on an exclusion. Having previously worked in a similar business does not, on its own, prove that you knew a particular procedure.

Permitted use should cover the legal, financial and operational assessment of the purchase. It should not be limited to ‘learning about the brand’ if you need to model scenarios or discuss the feasibility of obtaining finance. In return, it is reasonable to prohibit copying processes to set up another business or disclosing materials to competitors.

3. Ensure you can assess the opportunity with advisers, not blindly

Before signing, identify who needs to review the documents: a lawyer, accountant, prospective business partner or lender. Permission that limits access to the buyer alone can obstruct due diligence.

Propose a clause allowing you to share information with people who need it to assess the transaction and who are subject to appropriate confidentiality obligations. Clarify whether they need prior approval, how to request it and what responsibility you assume for their actions.

The agreement should also address disclosures required by a competent authority, with advance notice to the information owner where legally permitted and disclosure limited to what is required.

Confidentiality does not justify the indiscriminate sharing of customers’ or employees’ personal data. Law 1581 of 2012 and its implementing regulations still apply. When reviewing performance, request aggregated or anonymised information where this is sufficient; a confidentiality agreement does not replace the legal requirements for processing personal data.

You can agree on a phased disclosure process: first, general commercial information; then, sensitive documents subject to confidentiality; and finally, operational details due to be provided when the franchise agreement is put into effect. The timetable must allow you to make an informed decision before taking on irreversible commitments.

4. Review duration, penalties and the end of the assessment

Distinguish between the time allowed to assess the opportunity and the duration of the confidentiality obligations. A trade secret may remain protected for as long as it meets the legal requirements; other categories of information may have a defined contractual protection period.

Seek independent advice on any contractual penalty clause: what conduct triggers it, how the amount is determined and whether it is intended to apply in addition to damages. Do not assume that a stated amount will automatically be enforceable in every circumstance, or that it carries no consequences.

Also check that restrictions on competing, hiring staff or carrying on your business are not introduced under the heading of confidentiality. These are separate restrictions and need to be assessed in their own right.

If you decide against the purchase, agree on how documents will be returned or deleted, how backup copies will be handled and what minimum records may be retained to meet legal obligations or defend legal claims, always subject to confidentiality.

Practical conclusion: sign only when you can identify what the agreement protects, what you may use the information for and who can help you review it. Protecting the franchisor’s know-how and assessing the investment thoroughly are compatible aims.