Franchising in the Philippines: When You Cannot Run the Business

Your funding, location and business plan may all be in place—but what if illness or an accident temporarily prevents you from running the business? Before buying a franchise in the Philippines, check whether the right to keep the outlet operating depends on your personal presence. In franchising, a clear cover arrangement matters: an unexpected absence should not turn into a breach of contract.

1. Check whether your personal involvement is a requirement

Owning a business is not the same as managing it day to day. Some franchise systems may allow a trained manager to take charge; some agreements may require the franchise buyer to be actively involved. Do not rely on a verbal assurance that “you can always have someone run it for you”.

Look through the draft agreement for provisions on personal management, required time commitments, absence and replacement of the lead manager. Ask whether the obligation rests with you, a partner or the company signing the agreement.

Get written answers to the following questions:

• Must you be there every day, or is regular oversight sufficient?
• When must an absence be reported, and to whom?
• Is there a time limit on temporary cover?
• Must your replacement be approved and trained beforehand?
• What happens if you are unexpectedly admitted to hospital?

The distinction between an ordinary holiday and being unable to run the business is important. If one vague provision covers both, ask for clarification before signing.

2. Distinguish temporary cover from a transfer

Appointing a temporary manager does not automatically amount to selling or transferring the franchise. However, the contract may be drafted broadly enough to include a change in the person controlling operations among the changes requiring consent.

For example, if your spouse temporarily takes charge while you recover, that does not mean they can exercise all your powers. Separate consent may still be needed to place orders, approve expenditure or deal with the franchisor. Authority over bank accounts and company documents is a separate matter too.

Ask for the agreement to specify:

• Temporary replacement: who may be appointed and what qualifications they need.
• Approval process: the documents required, who makes the decision and the deadline for a response.
• Scope of authority: which tasks the replacement may carry out and which decisions still require consent.
• Return to management: how the temporary arrangement ends once you are able to return.

If you become permanently unable to run the business or die, a separate assessment is needed. Do not assume that a family member automatically becomes an approved operator simply because they are an heir.

3. Understand the law and the limits of the contract

The Philippines has no single comprehensive law covering every aspect of franchising. There are, however, specific regulations: Executive Order No. 169, series of 2022, sets out protections for the small businesses within its scope, including minimum agreement terms and the registration of franchise agreements.

The Civil Code is important when considering contractual obligations. Under Article 1306, parties may set their own terms, but these must not be contrary to law, morals, good customs, public order or public policy. Franchisors may also impose restrictions on the transfer of rights and obligations.

Republic Act No. 8293, or the Intellectual Property Code, is also relevant. Franchise agreements that fall within the scope of technology transfer arrangements need to take account of the prohibited clauses under Section 87 and the mandatory provisions under Section 88.

Agreement between the two parties is no substitute for legal review. Ask a lawyer to examine how the provisions on absence, disability, replacement, transfer and termination interact. Authorising a relative to act on your behalf does not automatically remove any requirement for consent under the contract.

4. Plan the arrangements and costs before buying

Ask for a clear breakdown of the potential costs of temporary cover: training a new manager, additional wages and any fees for processing approval. Find out whether the usual fees will continue to be charged while someone else runs the business.

Prepare a brief emergency plan too. Include the main contact person, the approved replacement, the location of important documents and the process for providing authorised access. Do not simply share your personal banking or system access codes; use proper authorisation procedures.

Practical reminder: Before buying, make sure you have written answers to three questions: who will step in, how will they be approved, and how much will it cost to keep operating? A resilient franchise should have a plan that does not depend solely on your daily presence.