Information to Prepare Before Offering a Franchise

Before offering your existing business as a franchise, prepare the information a prospective franchisee needs to make an informed decision. An impressive presentation or the success story of one outlet is not enough. In franchising, trust starts with evidence-backed claims, clearly stated limitations and adequate time for review. This guide focuses on preparing and sharing an information pack before an agreement is signed.

1. Understand the rules in the Philippines

The Philippines has no single comprehensive law covering every aspect of franchising. That does not mean there are no specific rules to follow. The Civil Code governs the validity of contracts, including freely given consent and matters involving fraud. The Intellectual Property Code is also relevant, particularly to trademark licensing and the transfer of business know-how.

Executive Order No. 169, series of 2022, sets minimum requirements for franchise agreements involving micro, small and medium-sized enterprises (MSMEs) as franchisees. These include clear rights and obligations, fees and dispute resolution mechanisms. It also directs the Department of Trade and Industry (DTI) to establish a register of agreements and sets out duties concerning registration and the submission of undertakings to comply. Ask a lawyer to identify the process that applies to your business and confirm it with the DTI.

Meanwhile, DTI Department Administrative Order No. 10-24 recommends that prospective franchisees obtain information to review before taking on a franchise. This is not equivalent to a general law requiring a single standard disclosure document or a uniform waiting period for everyone.

One incorrect reference is worth correcting: Republic Act No. 9178 is the Barangay Micro Business Enterprises Act of 2002, not a franchising law from 1995.

2. Gather the facts needed for an informed decision

Make your pack an organised collection of verifiable information, rather than another piece of sales material. Distinguish the business’s current position from plans that have yet to be put into practice.

Include the following:

• Franchisor identity: legal name, type of entity, principal office and authorised signatory.
• Operating history: when the business started, which outlets are company-operated and which are run by franchisees. Explain significant closures or changes to the business model.
• Trademark rights: who owns the trademark, its registration status and the basis of your right to license its use. Do not describe a pending application as a registered trademark.
• Actual support capacity: who will answer questions, what support is already available and what still needs to be developed.
• Material risks: dependence on the owner, limited experience in other locations or unresolved matters that could affect operations.
• Documents for review: the proposed agreement, a list of its attachments and an explanation of which version is current.

You do not have to disclose every trade secret immediately. Information can be shared in stages and under a confidentiality agreement. However, do not use this as a reason to withhold information that is material to the decision.

3. Back every material claim with evidence

Create an internal record with four fields: the claim, the source of evidence, the date it was last reviewed and the person responsible. For example, if you say every franchisee has a dedicated support contact, there should be an established schedule, sufficient staff capacity and a clear definition of that person’s responsibilities.

When stating the number of outlets, specify the date and counting method. Do not group operating, temporarily closed and planned outlets together as though they all have the same status. If you use a successful franchisee’s testimonial, obtain permission and do not present it as a typical result without sufficient evidence.

Avoid promising more than you can substantiate. “Help with site selection” does not automatically mean guaranteed customer numbers. A “ready-to-use system” does not remove the need for active management.

Review the messages used by your franchise recruitment team as well. A carefully prepared document is of little value if conversations, text messages or presentations contain contradictory promises.

4. Establish a clear process for sharing and updating information

Provide the pack early enough for prospective franchisees to ask questions and seek professional advice before signing or making a substantial payment. Make this your own policy; do not cite a supposed statutory number of days unless you have a clear legal basis for doing so.

Give each pack a date and version number. Record when it was sent, who received it and which questions were answered. If there is a material change before signing, provide an updated version and an opportunity to review it. An acknowledgement of receipt is no substitute for a proper explanation, nor does it give permission to provide misleading information.

Practical takeaway: before offering a franchise, make sure every material promise has a documented basis, every limitation is clear and every prospective franchisee has a genuine opportunity to carry out a review.