Checking a Franchise Agreement Signatory’s Authority

When an established business begins franchising, its owner usually focuses on the investment package and whether outlets are ready to operate. Yet one small check must not be overlooked: does the person signing the agreement actually have authority to bind the franchisee? In the franchise sector, clarity on this point helps prevent disputes over who must pay, operate the outlet and fulfil contractual obligations.

1. Distinguish between the contracting party and the person signing

The party to an agreement is not necessarily the person who attends the signing. A prospective partner may negotiate in their own name but intend to operate the outlet through a limited liability company. In that situation, establish from the outset whether the franchisee will be the individual or their company.

If the company is to be the franchisee, it must be named as the contracting party, while the individual signing acts as its representative. Do not use the individual’s name in the section identifying the parties and then introduce the company’s name only on the signature page.

Indonesia’s Government Regulation No. 35 of 2024 on Franchising provides that franchise activities must be based on an agreement between a franchisor and franchisee, or a sub-franchisor and sub-franchisee, with equal legal standing and subject to Indonesian law. This regulation replaces Government Regulation No. 42 of 2007.

Alongside these specific provisions, Article 1320 of the Indonesian Civil Code sets out the requirements for a valid agreement, including consent and legal capacity. An individual’s legal capacity does not automatically give them authority to represent a company. Checks must therefore cover both the identity of the contracting party and the basis of its representative’s authority.

Prepare a brief checklist recording the party’s full name, business structure and address, together with the signatory’s identity, position and basis of authority. Use it to check that the draft agreement is consistent throughout.

2. Check the documents establishing authority

For a prospective franchisee established as an Indonesian limited liability company (perseroan terbatas, or PT), request the incorporation documents and relevant amendments, official records confirming its legal entity status, and current details of its directors and commissioners. Cross-check the signatory’s name against these documents and their official identification.

Law No. 40 of 2007 on Limited Liability Companies, as amended, provides the general framework for company management and representation by directors. However, do not assume that every director can always sign alone. Check the articles of association, the allocation of authority and any internal approvals required for the transaction.

Use the following questions as a checklist:

• Is the signatory’s appointment still valid?
• Can they represent the company alone, or must they act jointly with another company officer?
• Does the transaction require approval from a corporate body under the applicable documents?
• Are there any restrictions or special circumstances affecting their authority?

Shareholders, financial backers, outlet managers and members of the owner’s family do not automatically have authority to represent the company. For other business structures, use the relevant formation documents and representation rules; do not simply copy the limited company checklist without adapting it.

Apply the same checks to the franchisor. A brand owner actively involved in negotiations is not necessarily authorised to sign on behalf of the franchisor’s business entity.

3. Define the scope of any power of attorney clearly

If the signatory is acting under a power of attorney, do not merely check that the document has been signed. Make sure the person granting the power has authority to do so.

As an internal control measure, request a power of attorney that identifies both the person granting it and the person authorised to act, describes the authorised actions, and specifies the agreement or transaction concerned. Check its validity period and any restrictions.

Distinguish between authority to handle administrative matters and authority to bind the company through an agreement. Government Regulation No. 35 of 2024 requires a power of attorney where an application for a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba, or STPW) is submitted by a representative. Do not assume that authority to apply for an STPW includes authority to sign a franchise agreement. The scope of authority for these two actions must be checked separately.

For example, a development manager may bring a power of attorney authorising them to submit registration documents. The franchisor’s team should not accept their signature on the contract without first obtaining appropriate evidence of their authority. If the scope of the power is unclear, request written clarification or a replacement document before signing.

For transactions involving complex ownership or representation arrangements, seek a review by a legal adviser. Do not rely on verbal assurances that the signatory has the owner’s permission.

4. Make these checks a condition of approval to sign

Assign one person responsibility for completing the checks before a signing date is approved. Separate the sales role from the final decision on whether authority has been adequately documented, so that recruitment targets do not compromise document checks.

Keep a single verification file containing the parties’ identification details, documents relating to company officers, relevant representation provisions, any required internal approvals, powers of attorney and a record of the checks completed. Restrict access to identity documents to staff who need them.

Shortly before signing, reconfirm that neither the contracting party nor its representative has changed. If the prospective partner switches the company that will become the franchisee, do not simply replace the signature page. Recheck the documents and the process for providing the prospectus to the correct prospective franchisee. Government Regulation No. 35 of 2024 requires the prospectus to be provided at least 14 calendar days before the agreement is signed.

Practical step: do not schedule signing until three things are clear: who will be bound, who will represent them, and which documents establish that representative’s authority.