Franchise Marketing Funds in Lebanon: Spending Rules and Transparency

When you turn an established business in Lebanon into a franchise network, the nature of your marketing budget changes. You are no longer spending only your company’s money: you may also be managing contributions paid by franchisees to support the shared brand. Simply including a ‘marketing contribution’ in the contract is therefore not enough. Before collecting it, you need rules that answer practical questions: where will the money go, who decides, and how will contributors know what it has achieved? This guide focuses on spending governance, not on setting fee levels.

1. Define the fund’s purpose and limits

Start with a policy document explaining what you mean by a marketing fund. Is it a central budget managed by the franchisor, or another contractual arrangement? Using the word ‘fund’ does not, by itself, create a separate legal entity or automatically protect the money from the company’s creditors. The name should reflect how the fund is actually managed.

Divide expenditure into clear categories, such as photography, shared digital campaigns, advertising material development and customer research. Then specify excluded expenses, particularly advertising to recruit new franchisees, the costs of selling franchise rights and the founder’s personal expenses. If you intend to charge marketing management salaries or software subscriptions to the budget, explain the basis for calculating those charges and their limits in advance.

Also distinguish between shared and local marketing. The franchisor might produce a standard campaign, while the franchisee pays to distribute it around their outlet. This distinction prevents the same cost from being charged twice and makes responsibilities clear before any advertising goes live.

2. Establish the rules within the appropriate Lebanese legal framework

Lebanon has no comprehensive franchise-specific law, nor a mandatory franchise disclosure regime requiring a standard document and a set waiting period of the kind found in some countries. The relationship is governed primarily by the Code of Obligations and Contracts and general commercial rules, alongside consumer protection, intellectual property, tax and other laws, depending on the activity and conduct concerned. The absence of franchise-specific legislation does not remove liability for misleading information or breaches of contractual obligations.

Likewise, do not assume that Legislative Decree No. 34 of 1967 on commercial representation automatically applies to every franchise agreement, or is automatically excluded. Determining the legal classification requires a Lebanese lawyer to review the substance and circumstances of the relationship, rather than relying on the contract’s title alone.

Make the fund policy a clear appendix to the agreement, covering permitted spending purposes, approval authority, reporting, the treatment of deficits and surpluses, and the process for amending the rules. Explain whether and how the franchisor contributes on behalf of its company-owned outlets, and whether any administrative expenses are deducted from contributions. Do not promise each outlet spending equal to its contribution unless you are prepared to deliver it: a shared campaign may benefit the brand without spending being distributed equally across locations.

3. Create an approval process that prevents conflicts of interest

Before collecting any contributions, appoint someone to prepare the budget, someone authorised to approve it, and someone responsible for checking invoices against work delivered. Roles may overlap in a small business, but ideally no single person should commission a service, approve it and authorise payment without review.

Set out a written procedure for selecting agencies and suppliers. When working with a company owned by the founder or one of their relatives, document the connection, the reasons for choosing it and a comparison with suitable alternatives. The aim is not to prohibit such arrangements, but to avoid turning franchisees’ contributions into an undisclosed benefit for a related party.

You can form a franchisee advisory committee to discuss the plan. Specify whether its role is advisory or includes voting rights, how its members are selected and who resolves disagreements. Urgent approvals also need controls: explain who can amend a campaign, the limits of those changes and how contributors will be informed afterwards.

4. Set up clear accounting and reporting

Track contributions and expenditure separately in your accounts, even if you do not open a separate bank account. Discuss the merits of a separate account, the tax treatment and the required invoices with your accountant. Separate accounting alone does not make the money legally independent.

In Lebanon, currency handling must be clear: specify the currency in which contributions are collected, the currency of each expense, the source and date of the exchange rate used, and how exchange differences are reported. Do not present a single total combining different currencies without explanation, or change the conversion method after spending without an agreed basis.

Issue regular reports showing the opening balance, amounts collected, spending by category, outstanding commitments and the closing balance. Include a summary of results, such as enquiries or orders attributed to the campaign where reliable data is available. Distinguish advertising reach from actual sales, and do not present a correlation between them as conclusive proof of causation.

5. Test the system before widening participation

Run a budgeting, approval and reporting cycle using your existing business’s expenditure before asking franchisees to contribute. Test scenarios involving a cancelled campaign, a delayed supplier and an unused balance. Specify in the contract whether surpluses are carried forward, how outstanding commitments are handled and what happens when a participant leaves, without assuming an automatic right to a refund of their contributions.

The practical takeaway: Do not start collecting contributions until you have a spending policy, a contractual appendix, an approval process and a reporting template in place. Workable transparency does more to protect trust within a franchise network than grand advertising promises.