Using Intermediaries to Sell Franchises in Colombia

Delegating franchisee recruitment can help a business in Colombia extend its reach, but it can also create commitments that its team is not equipped to fulfil. Before engaging an intermediary, define their authority, incentives and the limits of their sales pitch. In franchising, bringing the right franchisee on board for the long term matters more than securing a hasty signature.

1. Define the role before negotiating commission

Hiring someone to introduce prospective franchisees is not the same as allowing them to negotiate terms on the business’s behalf. The agreement should describe the tasks they are authorised to perform and, just as clearly, those that are excluded.

You can divide the process into four functions:

• Lead generation: finding interested people and obtaining permission to contact them.
• Presentation: explaining the concept using approved materials.
• Support: coordinating meetings and passing questions to the responsible team.
• Negotiation or representation: discussing terms or making commitments, strictly within expressly granted authority.

As a practical rule, leave approval of the candidate and the final terms to the franchisor. If the intermediary cannot offer discounts, reserve territories, receive money or sign documents, state this in the agreement and make it clear to the prospective franchisee.

Also decide who will handle each lead when the relationship with the intermediary ends. A business opportunity should not be neglected because two parties are arguing over who is entitled to commission.

2. Choose a legal structure that reflects the actual work

In Colombia, a franchise agreement is an atypical contract: it is not subject to a specific, comprehensive contractual framework. It is governed by the agreed terms and the applicable general rules, particularly the Commercial Code and, where relevant, the Civil Code. Freedom of contract does not remove duties of good faith or allow parties to disregard mandatory rules.

The agreement with the intermediary is separate from the franchise agreement. Depending on the intermediary’s functions and how the relationship operates in practice, it may involve legal arrangements such as brokerage, a commercial mandate or commercial agency, which are regulated by the Commercial Code. Calling it “consultancy” is not enough to determine its legal nature.

For example, introducing two potential contracting parties is not necessarily the same as independently promoting another business’s activities in a territory on an ongoing basis. This distinction warrants legal review because it can affect the parties’ obligations and the consequences of ending the relationship.

Nor should a regulatory proposal be confused with a current legal obligation. The draft on franchising published by Colombia’s Ministry of Commerce, Industry and Tourism in 2021 envisaged a franchise offering circular and a period of twenty working days; that text alone does not create an enforceable obligation. Do not use it as a selling point or imply that it provides official endorsement.

3. Control what the intermediary can promise

Prepare a short document setting out the limits of the sales pitch. It does not replace the franchise agreement or the information the candidate needs: its purpose is to prevent each salesperson from describing a different offer.

It should distinguish between three categories:

• Approved terms: aspects of the business that can be explained without further authorisation.
• Matters subject to assessment: territorial availability, the suitability of premises or approval of a candidate.
• Prohibited commitments: guaranteed profitability, assured finance, unapproved exclusivity or support that the franchisor does not provide.

Establish a process for resolving questions that fall outside these limits. It is better to respond after checking than to improvise a commitment that will be difficult to honour.

Before moving towards signing a contract, ask the franchisor’s team to confirm directly with the candidate what they understand they will receive. If an inaccurate promise emerges, clarify it in writing and allow the prospective franchisee to reconsider their decision. A general disclaimer should not be treated as automatic protection against statements made during negotiations.

Lead generation also requires care: Law 1581 of 2012 regulates personal data protection in Colombia. Define who will obtain the necessary consents and the purposes for which the data may be used or shared.

4. Link remuneration to verifiable milestones

The agreement should specify what triggers entitlement to commission: introducing a lead, securing the candidate’s approval or bringing about the signing of a contract. There is no universally applicable commission rate.

Clarify how duplicate leads, previously known candidates, travel expenses, taxes and deals that fall through will be handled. If commission can become payable during a period after the relationship ends, define that period and the identified opportunities it covers.

Avoid making rapid payments from candidates the sole incentive. Also assess whether candidates understood the proposition, whether any unauthorised promises were made and whether the intermediary followed the approval process.

Practical conclusion: before delegating franchise sales, settle three questions: what the intermediary can promise, who approves the deal and when entitlement to payment arises. Have the agreement reviewed by a legal adviser before putting it into practice.