Limits on an Agent’s Authority When Offering Franchises in the Philippines

When an established business is ready to franchise, its owner may appoint an agent to respond to enquiries and introduce the opportunity. But an unauthorised promise can lead to a dispute before an outlet even opens. In franchising, it is essential to be clear about who may speak, agree terms and accept money on behalf of the business.

1. Put the limits of authority in writing

Do not rely on a verbal instruction to “find someone interested in taking a franchise”. Draw up a written agreement with the agent before they begin approaching prospects. Specify whether their role is limited to introducing interested parties or also includes explaining the offer and following up on applications.

Distinguish between tasks they may carry out independently and those requiring the owner’s approval. For example:

• They may give an approved introduction to the business.
• They may arrange meetings and handle initial enquiries.
• They may not promise an exclusive territory without written approval.
• They may not reduce fees or add free equipment at their own discretion.
• They may not sign documents or accept payments unless expressly authorised.

Explain these limits to applicants too. At every introduction, it should be clear whether the person they are speaking to is a representative and who has final approval authority. Keeping the limits in a private agreement is not enough if the business presents a different picture to the public.

2. Control claims, not just brand presentation

Prepare a single approved guide for explaining the offer. What is said in meetings, sent in messages and set out in the franchise agreement should be consistent. Date each document and give it a version number so that outdated terms are not used.

Maintain a clear list of claims that must not be made. These include guaranteed profits, a guaranteed payback period, automatic location approval or support the business cannot actually provide. A small disclaimer stating that results may vary does not make a promise realistic.

Questions not covered by the approved guide should be referred to an authorised person. “We will need to confirm that first” is better than a guessed answer intended to keep an applicant interested.

Before the agent speaks to the public, run a role-play exercise. Ask whether fees can be reduced, the opening brought forward or sales guaranteed. This will show whether the agent knows how to avoid making promises beyond their authority.

3. Align commission with a sound process

An agent may be tempted to rush applicants if their performance is measured solely by the amount of money collected. Your agreement should specify when the service is considered complete and when commission becomes payable.

Clarify what happens if two agents introduce the same applicant, a prospect withdraws or a transaction is cancelled. Avoid changing the rules after the work has been done.

Wherever possible, direct any authorised payments through the business’s official payment channels. Do not allow transfers to the agent’s personal account to become routine. If the agent is authorised to accept money, there must be a clear process for acknowledging receipt, reporting the payment and transferring the funds to the business.

Keep records of offers sent, questions raised and approved changes. Confirm important discussions in writing so applicants know what has actually been agreed.

4. Have legal liability reviewed

The Philippines has no single comprehensive franchise law, but that does not mean there are no specific regulations. Executive Order No. 169, s. 2022 establishes protections for micro, small and medium-sized enterprises, including required provisions in franchise agreements and a framework for registering agreements with the Department of Trade and Industry (DTI). Seek advice on how it applies to your offer.

The Civil Code is also relevant to contracts, consent and the relationship between an agent and their principal. Fraud or misrepresentation may affect an agreement’s validity and give rise to liability. A clause stating that “verbal promises are not binding” does not automatically remove the risk.

Republic Act No. 9178 concerns Barangay Micro Business Enterprises; it is not a “Philippine Franchise Act”. Meanwhile, the QFA Code of Conduct sets standards for its members; it is not a substitute for the law or government approval.

Practical reminder: Before appointing an agent, prepare written authorisation, an approved explanation of the offer and payment controls. A good representative does more than attract applicants—they make sure applicants understand what is genuinely on offer.