Many companies in South Africa have often benefitted greatly from converting branches into paid-for franchise operations and most new operations are now set up as franchises.
The benefits and risks associated with franchise agreements
The advantages of franchising are now abundantly clear. Franchising gives the entrepreneur greater freedom and motivation and allows him or her to maximise his or her profit. It is, therefore, not surprising that franchising has caught on countrywide.
Those going the franchise route, should, however, take note that certain sections in the Consumer Protection Act make it obligatory for franchise trade names to be registered.
The concern here is that, although the trade name clearly remains the possession of the franchisor, a disaffected franchisee (one who, for example, has had his franchise cancelled) might try to continue to use the name after no longer being associated with the franchisor.
How to protect your name as a franchisor
In view of this danger, we are recommending that all franchise agreements spell it out that the franchise name is the intellectual property of the franchisor and stipulates that on termination of the franchise agreement, the franchisee will deregister it. Further, if the franchisee fails to do this, the agreement should state that the franchisor has the power to deregister the name and recover the costs of doing so from the former franchisee.
These clauses will ensure that, in light of the relevant sections of the Consumer Protection Act (for instance, the sections requiring franchise trade names to be registered), the franchisor is adequately protected. It is important to note that the franchise rulings in fact apply to every franchise in operation, no matter what activity they are involved in.
If you are a franchisor and feel that your name is not adequately protected in your contracts with your franchisees, and would like more information on how to protect your name as a franchisor, please do not hesitate to contact Gunstons at firstname.lastname@example.org.
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