Franchising in the Philippines: Know the Company You Are Contracting With

You may know the brand, but not the company that will receive your money. When buying a franchise in the Philippines, it is important to distinguish between the name on the sign, the business selling the opportunity, and the legal person responsible under the agreement. Clearly identifying your contracting party is fundamental to careful franchise selection—especially when separate companies handle sales, training and product deliveries.

1. Match the brand to the actual contracting party

Before paying anything, ask for the franchisor’s full registered name, business structure, official address and registration documents. If it is a corporation, check its name against the records of the Philippine Securities and Exchange Commission (SEC). If it is a sole proprietorship, identify the owner and check the business name registration with the Department of Trade and Industry (DTI).

A business name is not a separate corporation. This matters because an advertisement may show only the shop’s trading name, while a different legal name needs to appear on the contract and payment documents.

Create a simple table with four columns:

• The brand name being offered;
• The contracting party’s full name;
• The payment recipient’s name;
• The company responsible for each key obligation.

If the names differ, ask for an explanation and documents confirming the relationship between them. Using related companies is not automatically a problem. The problem arises when it is unclear whom you can pursue for payment or hold accountable.

2. Verify authority to sign and receive money

A business card or an official company email address is not enough. The agent introducing the franchise may be authorised to sell it but not to sign agreements or commit the company to obligations.

For a corporation, request appropriate evidence of authority, such as a corporate secretary’s certificate confirming a board resolution. Have it checked to establish whether it covers the specific agreement and the person who will sign it. The documentation need not be identical for every business; what matters is verifying authority in the context of the organisation and transaction.

Before paying, make sure the receiving bank account is held by the contracting party or its documented, authorised collection agent. If you are given an agent’s personal account, pause payment while you confirm the reason and authorisation.

Keep the payment instructions, proof of transfer and relevant tax documents. Confirm any change of bank account through a separate, verified contact channel—not merely through the message requesting the change.

3. Assess whether the company itself can deliver

An attractive shop is not sufficient evidence that your contracting party is financially sound. The outlet you see may belong to another company or a different franchisee.

Ask to see the latest available financial statements of the actual company that will sign the agreement, including the accompanying notes and auditor’s opinion, where available. Have a qualified adviser assess the following:

• Does it have enough cash to meet its day-to-day obligations?
• Does it have substantial debts falling due soon?
• Does it rely on loans from related companies?
• Are there significant disclosures about its ability to continue as a going concern?

If it is a new company without a substantial track record, ask for evidence of committed funding and agreements supporting the activities it promises to carry out. The wealth of its owners or a related company does not automatically mean those funds are available to your contracting party.

Also ask about legal matters that could affect its ability to fulfil its obligations. Refusing to provide information is not, in itself, proof of fraud, but it is a reason to be less confident and to avoid proceeding without adequate clarification.

4. Understand the law’s protections and limits

The Philippines has no single comprehensive franchise law. Executive Order No. 169, series of 2022, provides protections for small businesses within its scope, including mandatory provisions in franchise agreements. It does not guarantee a company’s financial stability or replace your own due diligence.

The Revised Corporation Code is also relevant to corporations, as is the Civil Code to contracts. Under Article 1306 of the Civil Code, parties may set contractual terms, but those terms must not contravene the law or other prescribed standards. Under Article 1390, annulment of a contract may be sought where consent was obtained through fraud or another recognised defect in consent, depending on the circumstances.

Registration with the SEC or DTI does not automatically mean the government has approved the franchise offer. Nor does membership of an association guarantee payment or performance.

Practical reminder: Before signing, establish three things: you know the legal party you are contracting with, its representative’s authority has been verified, and there is reasonable evidence that it can meet its obligations. If any of these remains unclear, seek clarification before making a payment.