Sub-franchising in Venezuela: how to authorise its development

When turning a Venezuelan business into a franchise, you may encounter a prospective partner who wants not only to open outlets but also to recruit other franchisees. That proposal changes the allocation of responsibilities. Before accepting it, consider whether your business is ready to delegate part of its expansion while keeping clear lines of accountability across the franchise network.

1. Distinguish between opening several outlets and granting sub-franchises

A multi-unit franchisee runs outlets under the rights granted by their contract. This does not mean they can grant those same rights to third parties. Sub-franchising involves a different relationship: an authorised operator enters into contracts with sub-franchisees so that they can develop the business.

There may also be a developer who finds candidates or coordinates openings, while each franchisee contracts directly with the owner of the franchise system. Although similar names may be used commercially, the legal and operational implications differ.

Before negotiating, draw up a simple outline:

• Who signs the contract with each outlet operator?
• Who authorises use of the brand?
• Who receives payments and provides support?
• Who can require corrective action and enforce contractual rights?

Do not grant sub-franchising rights through an ambiguous phrase such as “develop the territory”. The contract must expressly state whether this authority exists and what its limits are. If you only want to allow the franchisee to operate several outlets themselves, make that restriction equally clear.

2. Place the authorisation within Venezuela’s legal framework

Venezuela has no dedicated franchise law establishing a comprehensive framework for this model. A franchise agreement is regarded as an atypical commercial contract: its structure rests on the Commercial Code and the general rules on obligations and contracts in the Civil Code.

The Industrial Property Law is relevant to trade mark rights. The competent Venezuelan authority in this field is the Servicio Autónomo de la Propiedad Intelectual (SAPI), the country’s intellectual property authority. Before sub-franchising is authorised, a lawyer should verify that the party granting the rights has the authority to do so and that permissions for use and sublicensing are consistent with existing ownership documents and agreements.

Applicable general rules on competition, taxation and employment, among other matters, must also be respected. Freedom of contract does not allow mandatory provisions to be set aside.

An association’s code of ethics should not be confused with national law. The Profranquicias Code of Ethics provides for disclosure of whether a franchisee may grant sub-franchises and under what conditions. Its scope should be assessed in light of membership and the commitments undertaken; it does not amount to a general legal obligation to provide an offering circular under a dedicated Venezuelan regulatory framework.

3. Check that you can oversee an intermediary

A successful operation does not, on its own, demonstrate the ability to manage sub-franchising. Here, you need to pass on two capabilities: running outlets and supporting other business owners who run them.

Assess the prospective sub-franchisor using concrete evidence. Ask for a proposed team structure, availability for training, a process for handling queries and evidence of the resources needed to sustain their organisation. Avoid accepting a promise of rapid openings as the only assurance.

Prepare a responsibility matrix for activities such as candidate selection, training, opening support, ongoing monitoring and incident reporting. Each activity should have a lead party responsible and a route for escalation to the owner of the franchise system.

A limited pilot can help test this capability before rights are expanded. Define its scope and assessment criteria in writing. Do not mistake good management of an operator’s own outlets for proven experience in supporting third parties.

4. Align the contracts before bringing in third parties

The main agreement and the sub-franchise agreements must work together. Simply copying the standard contract and changing the parties’ names is not enough.

Pay particular attention to these points:

• Scope of rights: what may be granted and which decisions require the system owner’s approval.
• Duration: how contract terms align, to avoid promising rights that the intermediary will no longer be able to provide.
• Information: which reports the system owner will receive and how they can verify compliance with standards.
• Payments and services: who collects each payment and what services each participant must provide.
• Termination of the main agreement: what consequences this will have for sub-franchisees and what arrangements for continuity could validly be agreed.

Continuity should not be assumed to be automatic. Any future direct agreement, replacement of the support provider or assignment of a contract requires a legal structure compatible with the relevant agreements and consents.

Practical conclusion: before authorising sub-franchising, prepare a map of the contracts and a responsibility matrix. If you cannot explain who grants each right, who provides each service and what happens if the intermediary fails, you are not yet ready to delegate that expansion.