Franchising in Colombia: what the initial franchise fee should cover

The initial franchise fee may look like the price of buying a franchise, but it does not mean you are acquiring ownership of the brand or covering all your opening costs. Before joining a franchise network in Colombia, you need to translate that charge into verifiable rights, deliverables and conditions. The crucial question is not just how much it costs, but exactly what you receive in return.

1. Distinguish the initial franchise fee from other payments

The initial franchise fee is usually an upfront payment for access to the business model. Depending on the agreement, it may cover joining the network, the initial transfer of know-how and certain preparatory activities. There is no universal package included in this payment: its scope must be defined in the contract.

Nor are you buying ownership of the trade mark. You receive permission to use it, subject to agreed conditions and for an agreed term. Royalties, by contrast, are recurring payments whose purpose and calculation should be distinguished from those of the initial fee.

Ask for a written breakdown separating:

• The rights you acquire through the fee, such as operating an outlet under the agreed business model.
• The initial services included, their scope and who is responsible for providing them.
• Costs you will pay separately, even if they are necessary to get started.
• Services and other benefits covered by royalties or other charges.

For example, an offer that includes training does not necessarily cover travel, accommodation or training for additional employees. Similarly, receiving design guidelines is not the same as receiving technical drawings or having fit-out work carried out. These distinctions help you compare proposals without mistaking a lower initial fee for a cheaper overall offer.

2. Turn the fee into verifiable commitments

Ask for a simple table with four columns: included item, scope, delivery date and evidence of completion. You do not need to assign an artificial price to every component; you need to know what you are entitled to receive.

If access to operational know-how is included, specify how it will be provided and when it will be available. If initial support is offered, identify the activities involved and who is responsible for them. If the fee authorises only one outlet, do not assume it allows you to open others without a new agreement.

Also check who receives the money and who takes on the obligations. Where a sales representative, master franchisor or local operator is involved, the contract should clarify each party’s role. An invoice or receipt proves payment, but does not replace a clear definition of what must be provided.

Do not sign an acknowledgement of full receipt before checking what has been delivered. Propose written acceptance records that allow you to document what you have received and identify outstanding items. Accepting a manual should not be confused with confirming that all initial services have been completed.

3. Negotiate when the payment obligation arises and how you will pay

Distinguish three points in time: when the obligation to pay arises, when payment falls due and when the franchisor must fulfil its obligations. These may coincide, but should not be left implicit.

You can propose payments linked to verifiable milestones. This is a negotiable term, not an automatic right for the buyer. If the franchisor requires full payment on signing, pay particular attention to what remains to be delivered and the contractual remedies available for delays or breaches.

The agreement should answer specific questions:

• Does the fee cover rights granted on signing, services provided later, or both?
• What happens if an included service or deliverable is never provided?
• How will partial delivery be documented?
• What happens to amounts already paid if there is a breach attributable to the franchisor?

Do not assume that every initial franchise fee is refundable, or that wording such as ‘non-refundable’ settles every dispute. Its effect must be assessed alongside the obligations undertaken, the reason for the breach and the applicable law. Seek legal advice before accepting a broad waiver of claims.

4. Review the fee within Colombia’s legal framework

In Colombia, a franchise agreement is an ‘atypical’ contract: there is no specific, comprehensive statutory framework governing it. Valid agreements between the parties apply, alongside the general provisions of the Commercial Code and, where relevant, the Civil Code. Decision 486 of the Andean Community regulates aspects of industrial property, including matters relating to trade marks.

This does not mean the contract is your only protection: mandatory legal rules and duties of good faith also apply. However, a precise description of what the fee covers makes it easier to identify what was promised and establish any subsequent breach.

There is currently no special general regime requiring a franchise disclosure document with a mandatory review period of twenty working days. That provision appears in a 2021 regulatory proposal and should not be presented as an obligation currently in force. You can negotiate sufficient time to review the offer and obtain advice before paying.

Practical conclusion: do not agree to the fee based on its label or a sales presentation. Pay it only once you understand what it covers, what it excludes, when the relevant obligations must be fulfilled and how to pursue a claim for anything outstanding.