Franchising in Venezuela: agreeing purchasing and supplier terms

A franchise may offer an attractive concept yet still be difficult to run if it requires you to buy supplies without clear rules on pricing, delivery or substitutions. Before joining the network, assess supply arrangements as a core financial commitment. Knowing who supplies the goods is not enough: you need to understand what you must buy and what options you will have if supplies fail.

1. Define mandatory purchases

Request a list of the products, raw materials, packaging and services you must buy from the franchisor or designated suppliers. Distinguish requirements intended to preserve the business’s identity from those that allow equivalent alternatives.

Prepare a table with four categories:

• Exclusive purchasing: purchases must be made from a specified entity.
• Approved suppliers: purchases may be made from several pre-approved suppliers.
• Technical specifications: you may choose the supplier, provided the product meets verifiable requirements.
• Unrestricted purchasing: the choice is left to the franchisee.

For each category, identify the document that imposes the obligation. Check whether the contract allows the list to be expanded unilaterally and what financial consequences that power could have.

Also ask who actually sells and invoices the goods. A supplier recommended by the brand is not automatically one whose deliveries the brand is responsible for. If supplies depend on a company other than the franchisor, you may need a separate agreement aligned with the franchise agreement.

2. Understand the legal framework for these restrictions

Venezuela has neither a comprehensive franchise-specific law nor a general statutory pre-contractual disclosure regime requiring a standardised disclosure document with prescribed content and deadlines. Franchising is structured as a commercial contract without its own specific statutory framework, governed primarily by the Civil Code and Commercial Code, alongside the rules applicable to each transaction.

The Civil Code provides rules on obligations, the binding force of contracts and good faith. The Commercial Code governs the relevant commercial aspects. The Anti-Monopoly Law also matters for purchasing restrictions: an exclusive supply clause should not be assessed solely on the basis that both parties have accepted it.

The Guidelines for the Evaluation of Franchise Agreements, issued by the former competition authority, Procompetencia, under previous legislation, also exist. They address contractual restrictions from a competition perspective; they are not equivalent to a comprehensive franchise law. Ask a Venezuelan lawyer to assess their scope alongside current legislation and the circumstances of the agreement.

Do not assume that all exclusivity arrangements are invalid, or that protecting the brand justifies every restriction. Ask for an explanation of each restriction’s purpose, scope and duration. Specific rights to switch suppliers, return goods or recover particular costs should be expressly negotiated, without prejudice to any applicable legal remedies.

3. Calculate the full cost of supplies

A price list does not necessarily show how much it will cost to have each item available at your premises. Request written quotations and commercial terms that allow you to calculate the full cost:

• Product price, invoicing currency and payment terms.
• Currency conversion rules, where relevant, subject to legal review.
• Transport, insurance, storage and applicable taxes and duties.
• Minimum orders, dispatch frequency and required advance payments.
• Remaining shelf life and arrangements for defective or expired products.

Compare offers on a like-for-like basis: quality, format, quantities and delivery terms. A lower unit price may become less attractive if it requires you to hold stock you cannot sell in time.

Ask whether the franchisor receives volume discounts, rebates or other benefits from the supplier. Seek clarity on how these are handled; do not assume they must automatically be passed on to the franchisee.

Negotiate how price changes will be communicated and what will happen to orders already accepted. Avoid relying on a price list that can change without notice when you must pay in advance or maintain mandatory stock levels.

4. Agree a fallback for shortages and faulty deliveries

An exclusive purchasing obligation should be accompanied by practical supply rules. Propose deadlines for order confirmation and delivery, acceptance criteria and a documented procedure for reporting discrepancies in quantity or quality.

For critical supplies, negotiate a temporary substitution mechanism. This can define the events that trigger it, how to request authorisation, who checks technical equivalence and when the brand must respond. Do not assume that silence authorises an alternative purchase: that effect would need to be expressly agreed and legally reviewed.

Also establish who bears the cost of returns, replacements and additional transport. Where appropriate, agree to suspend minimum purchasing requirements affected by a shortage attributable to the supplier, without turning this into a general right to withhold payments due under other obligations.

Before signing, test the agreement against three scenarios: an order that fails to arrive, a batch that must be rejected and a price increase announced after an advance payment. Each scenario should have clearly identified responsibilities and steps to follow.

Practical conclusion: do not accept mandatory purchasing requirements without understanding their full cost and negotiating a workable fallback if supplies fail. Include a supply schedule in the contract setting out suppliers, terms and verifiable alternatives.