Buying a Franchise in Venezuela: Agreements Between Business Partners

Buying a franchise with relatives, friends or investors allows you to pool resources, but it also requires clear rules for shared decision-making. Before entering Venezuela’s franchise market, establish how the relationship between the owners will work. The franchise agreement alone does not settle who must provide additional funding, when profits will be distributed or what happens if the owners reach a deadlock.

1. Distinguish the franchise agreement from the agreement between owners

The franchise agreement governs the relationship with the franchisor. The incorporation document and articles of association set out how the company operating the business is organised. A separate agreement between owners can set out further internal commitments, but it must be consistent with the articles, the franchise agreement and applicable law.

In Venezuela, incorporating a commercial company involves formalities that should be reviewed with a lawyer. These include preparing the incorporation document and articles, registering them with the Commercial Registry and completing the required publication. Do not confuse incorporating the company with securing the right to operate the franchise: these are separate steps.

Before committing funds, prepare an outline identifying:

• Who will be the franchisee: the company that will assume the obligations towards the brand.
• Who will own it: ownership stakes and committed contributions.
• How it will be managed: governing bodies, powers and internal limits.
• Which documents must align: the articles, the agreement between owners and the franchise agreement.

Ask a lawyer to review how each provision will apply to the company, its owners and third parties. A private agreement does not necessarily have the same legal effect as a provision properly formalised in the articles.

2. Document contributions and additional funding needs

It is not enough to agree that each person will cover a share of the investment. Distinguish between share capital, loans from owners and assets contributed to the company or made available for use at the premises. Each arrangement has different implications for ownership, repayment and accounting.

Prepare a table recording the contributor, the nature of the contribution, its amount or valuation, the delivery date and supporting evidence. If someone provides equipment, specify whether ownership passes to the company or whether the company is simply allowed to use it. If money is provided as a loan, document its terms and do not also treat it as capital.

Next, agree on what will happen if the business needs additional funds. Define who can propose a contribution, what information must support the proposal and how it will be approved. Include a procedure for situations where an owner cannot or does not wish to participate.

Do not assume that contributing more money automatically increases an ownership stake. Any change must comply with the rules governing the company and the relevant formalities. Nor should you improvise reductions in ownership stakes or penalties: have them legally reviewed before agreeing to them.

3. Separate decision-making, remuneration and profits

Being an owner does not mean being authorised to take money from the till. Nor does it mean that everyone should receive the same pay for different work. Keep three concepts separate: remuneration for duties actually performed, repayment of loans and distribution of profits.

Agree on a profit distribution policy that takes account of verified results, outstanding obligations and the company’s needs, always within legal limits. A bank balance alone does not establish that there are profits available for distribution.

For decision-making, prepare a simple matrix:

• Day-to-day management: actions management may take within the approved budget.
• Reserved decisions: significant borrowing, exceptional investments or commitments involving related parties, subject to the agreed approval process.
• Reporting: the accounting and financial information owners will receive, and how often.

Test the rules against a specific situation: the company needs to replace a piece of equipment, but one owner would prefer to distribute profits. Who decides, and on the basis of which documents? If every disagreement brings the business to a halt, a deadlock resolution mechanism is missing. You can agree on a staged review process and independent advice, rather than allowing an ordinary disagreement to cause an indefinite standstill.

4. Review the legal limits before signing

Venezuela has neither a comprehensive franchise-specific law nor a general mandatory pre-contractual disclosure regime equivalent to those in some other jurisdictions. The relationship is governed by the Civil Code and the Commercial Code, alongside other applicable rules. The Commercial Code is particularly relevant to the company’s organisation and its owners’ rights.

There are also specific earlier measures, such as the 1999 Guidelines for the Evaluation of Franchise Agreements, which relate to competition law. These do not replace company law rules or provide a model agreement between investors.

Arrange for all the documents to be reviewed together. Internal agreements cannot release the company from its obligations to the franchisor or override mandatory legal rules. Also check whether particular company decisions require the brand’s consent.

Practical conclusion: before buying with business partners, put in writing who contributes, who decides, how information is shared and when profits are distributed. Resolve differences on paper before they jeopardise the running of the business.