FRANCHISING IN NIGERIA

INTRODUCTION

Franchising is a well-utilized model used for business expansion by both multinationals and local businesses. This model has been adopted by companies like Domino Pizza, Shoprite, and Spar who were originally founded in South Africa and the United States but now have a large customer base in Nigeria.

This article will discuss the meaning, types, and legal framework of a franchise in Nigeria as well as the contents of a franchise agreement.?

WHAT IS A FRANCHISE?

The International Franchise Association defines a franchise as an agreement or license between two legally independent parties which gives a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor); the franchisee the right to market a product or service using the trademark or trade name of another business. Franchising enables access to an established product or service which already enjoys widespread brand-name recognition

Some examples of franchisees in the quick service restaurant (QSR) sector in Nigeria include Mr. Biggs’, Domino’s Pizza, Chicken Republic, Kentucky Fried Chicken (KFC), Debonair’s Pizza, Tastee Fried Chicken (TFC), and Tantalizers.

Types of Franchises in Nigeria

a.??????Job?franchises:- Usually involving sole proprietor-business models that consist of low-level investments via the purchasing of basic equipment, product stock, and mobile product support such as a bicycle e.g. Fan Yogo Bicycle men and 1-man Sports-betting centres.

b.??????Product/Distribution?franchises:- This involves using the franchisor’s Trademark without any further Business supporting structure e.g. Tire Wholesale centers and Computer retailing centers.

c.??????Business?format?franchises:- This is a franchise system that relies on the use of the franchisor’s trademarks and his business system to market the product e.g. Fast-food franchises and membership fitness centers.

d.??????Investment?franchises:-Franchises under this category usually involve large investments by the franchisee and might require the franchisor’s management for ensuring returns on investment e.g. 4-5 star hotel franchises, Mall franchises.

e.??????Conversion?franchises:- This involves the converting of Independent business units via franchising agreements that can be framed as strategic partnership agreements involving Trademark adoption by the franchisee as well as training systems, advertising programs, and critical client service standards among other things. e.g. Professional service firms such as Deloitte (which for a while operated as Deloitte Akintola Williams).

LEGAL FRAMEWORK OF FRANCHISE IN NIGERIA

There is no franchise-specific law in Nigeria regulating the sale of franchises. Although, there is currently a Franchising (Establishment) Bill, 2022, yet to be enacted that particularly provides that all franchise agreements between Nigerian franchisees and their franchisors shall incorporate standard provisions in line with international best practices.

In the absence of a franchise-specific law, there are several regulatory provisions, existing in bits and pieces that affect franchising in Nigeria. An example is the?National Office for Technology Acquisition and Promotion (NOTAP) Act Cap. N62 LFN 2004?which established NOTAP.

FRANCHISE AGREEMENT

Section 4 of the NOTAP Act states that such agreements are to be registered if they are regarding:

a.??????Use of trademarks

b.??????Use of patented inventions

c.??????Supply of technical expertise in the form of technical assistance of any description whatsoever

d.??????Supply of detailed engineering drawings

e.??????Supply of machinery and plant

f.???????Provision of operating staff, managerial assistance, and the training of personnel.

The NOTAP Act stipulates that an agreement for the transfer of technology must not exceed a term of 10 years. In practice, however, NOTAP usually approves a franchise agreement for a period of three years, and upon its expiration, it needs to be renewed for further periods of three years.

The NOTAP also has the power to refuse the registration of a franchise agreement that contains provisions that impose an obligation on the franchisee to acquire equipment, tools, parts, or raw materials exclusively from the franchisor or any other person or given source. Also, by Section 6 (2) of the NOTAP Act, NOTAP may refuse to register any agreement that compels the franchisee to submit to a foreign jurisdiction in any controversy arising for a decision concerning the interpretation or enforcement in Nigeria of any such contract or agreement or any provisions thereof.

The key provisions of a franchise agreement include:

a.??????Rights granted to the franchisee??– This could include any options to use intellectual property related to the business.

b.??????Fees??– There are usually fees required to buy into a franchise, as well as other management fees that are payable to the franchisor.

c.??????Term –??The term of the franchise agreement is usually between 5-10 years and there should be a mechanism that allows for an extension in certain scenarios.

d.??????Obligations –??This will usually provide a guide on how the franchisee should operate the franchised business by applicable rules

e.??????Restrictions –?Restrictions that apply during the term of the franchise agreement and after its termination or expiry.

f.???????Intellectual property rights –??The steps that need to be taken to protect the IP rights in the franchise, while also detailing how the franchisee can exploit these same rights for the benefit of the business.

g.??????Insurance –?Suitable insurance will be in place to cover various liabilities.

h.??????Termination –?Very rarely will there be a specific termination clause in a franchise agreement enabling the franchisee to terminate early, but there may be legal rights that can be exercised by a disgruntled franchisee.

i.????????Exit –??Franchisees may be able to sell their interest in a franchise to the franchisor or separate third party, providing a clear exit route

HOW TO START A FRANCHISE IN NIGERIA

First and foremost, to start a franchise in Nigeria, one will need to first register its business with the Corporate Affairs Commission. The Companies and Allied Matters Act, 2020 provides that any person who intends to carry on business in Nigeria must first of all register their business for that purpose. Similarly, where the business owners are foreigners, the Immigration Act 2015 and the Nigeria Investment Promotion Commission Act further provide that non-nationals must ensure that it registers their business with the Nigeria Investment Promotion Commission and obtains a business permit to be able to carry on business in Nigeria. If the newly registered company would be employing foreigners, it will need to apply for an Expatriate Quota as provided for in Section 34 of the Immigration Act (highlight my previous article on how to get an expatriate quota).

Furthermore, to start a franchise in Nigeria, one has to also register the franchise agreement with the National Office for Technology Acquisition and Promotion (NOTAP). It is pertinent to note here that in registering a franchise agreement, the Federal Competition and Consumer Act (FCCPA) provides that any provision in an agreement for the sale of goods that tends to establish minimum prices for the resale of goods in Nigeria shall be void.

In addition, a company that intends to start a franchise in Nigeria will also need to have its trademark registered in Nigeria. Nigeria is the first to file jurisdiction so for any mark to be protected, it will need to be registered in Nigeria regardless of the same mark being registered in other jurisdictions.

In conclusion, in addition to the aforementioned, a franchisee will also need to secure a lease agreement for the franchise store in a suitable location, employ local staff, register the franchise company with the Federal Inland Revenue Service (FIRS) for tax purposes, register for some industry-specific permits. For instance, a franchise that intends to operate in the Oil and gas sector must amongst other things obtain a license from the Department of Petroleum Resources (DPR).

CONCLUSION

For Nigeria to fully leverage franchising as a tool for economic development, it would be necessary to enact laws to guide franchise transactions. Franchising, as a form of strategic alliance, holds a lot of promise for economic development by building up the entrepreneurial capacity of local business people, indigenising the economy, and contributing to halting capital flight; hence, it should receive institutional support.