In this work my object is to expose a new contract that is atypical in nature. As societies advance, and especially in recent times in which the economy has a leading role, which has generated, together with the new ways of life and current needs, a series of new businesses that have been captured by the Law. In some cases, these businesses have already been subject to legal regulation, dictating special national laws aimed at putting order and ending the legal "chaos" produced by the uncertainty generated by these original forms of contracting totally different from the pre-existing ones or that in other cases are a hybrid of traditional and modern forms.
Chapter I
DEFINITION OF THE CONTRACT
1.-Origin of the Contract
The Roman contractual system:
To enter into the study of contracts, it is necessary to clarify the meaning of the terms convention, pact and contract.
The contract is the agreement of wills that falls on a legal business that aims to create, modify or extinguish any right, intended to produce effects, that is, to regulate the rights of the parties. It was a bilateral or multilateral business inasmuch as it required the concurrence of two or more wills. It constitutes the gender with respect to the contracts.
It is also necessary to clarify the true meaning of the conventions, establish their content and scope compared to other analogous expressions such as pact and contract.
The pact differs from the convention, since it refers to those relationships that lack action, since they only generate an exception. With the passage of time, the pact was assimilated to the contract by granting it actions to demand its fulfillment.
The contract applies to any agreement of wills recognized by civil law, aimed at creating civilly enforceable obligations. These came to constitute one of the most fertile sources of credit rights. It was always protected by an action that gave it full legal effectiveness, which also happened with some agreements that did not fall into the category of contracts, but there were also a large number of conventions or agreements that, unlike contracts, were not provided action to demand compliance and lacked a name.
The fact that the will of the parties constitutes the fundamental element of the conventions, from which it follows that the convention forms law between the parties, and the obligations according to the provisions it contains, this principle is recognized by the Romans as legal natural, and therefore they admit that any convention not rejected, gives rise to a natural obligation between the contracting parties, but for the obligation to have enforceable force in the law of quirites, it was necessary that it also have a civil cause. These were the contracts (contractus).
To give a very complete definition of a contract, we can say:
«It is the convention that has a special name (eg. Purchase, sale, location, etc.) or, failing that, a mandatory civil case (such as, for example, the transfer of ownership of a thing: data) and to which the right sanctions with an action ».
The evolution of the contract in Rome:
As I have expressed previously, not every agreement of will was considered a contract, but only those relationships to which the law attributed the effect of engendering civilly enforceable obligations.
In Justinian law, the contract is the agreement of wills capable of constituting a person in debt to another, including as such any kind of business that has the purpose of creating, modifying or terminating any legal relationship.
The nexun was the first Roman contract to be characterized by the rigid solemnities that had to be followed for its completion, such as the weighing of copper and the balance and the presence of the librepiens and the five witnesses.
A derivation of the nexum is the sponsio, which was the contract that consisted in the use of sacramental words, such as spondes ?, to which the obligor replied spondeo, without the need for per aes et libram. But as this contract could be carried out between citizens, the stipulatio appears so that non-citizens could also contract, where the parties could question each other using any expression, to which the obligor always answered: promitto. In this way, verbal contracts were born.
From the practice of a Roman citizen keeping a domestic registry book, the codex accepti et expensi, where he noted the credits against the debtor, thus we find the transcriptite payroll that was used when the obligor was another citizen, and with the chirographa or syngrapha for the foreign debtor. Of these forms of celebrating a convention whose improvement was based on the annotations, derived from literal contracts.
Later, the mutual, the loan, the deposit and the pledge were added, these arise when the nexum ceases to be the most suitable means to celebrate them, the simple tradition of one thing being enough. These constitute the actual contracts
Finally, when the evolution of Roman Law made the agreement of wills the characteristic element of the contract, it is accepted that they can be perfected by the mere consent of the parties, thus appearing, consensual contracts
2.-Etymology
The word comes from the Latin "Contractrus" derived from Contrahere "which means to arrange, to achieve.
3.-Concept of Contract
Art. 1351ª CC: The contract is the agreement of two or more parties to create, regulate, modify or terminate a legal relationship
For Cabanellas, the contract is the mandatory agreement, between two or more parties, related to a service, matter, procedure or case. The legal institution is around each contract, turned into reality by concordant wills, arises by the mandatory or supplementary precepts, which the legislator establishes, singularly in the nominated contracts, and by the procedural actions where appropriate.
The Contract for the manifestations of will, a "legal entity" is born or emerges into legal life. The Contract is the agreement of wills by which one person agrees with the other to give, do or not do, that is, to deliver goods or services or refrain from doing something: The Contract creates obligations, it can also or extinguish the above established.
Finally. Others say that the concept of contract must be modified, because with scientific and technological progress, it can be contracted even through a machine and consequently the contract would not be the agreement of two or more parties, but "the concurrence between a legal relationship patrimonial"
4.-Elements of the Definition
It can be noted as elements of this definition:
4.1 -Agreement of two or more parties.- in the contract there is an agreement of the parties to voluntarily reach a consequence. Therefore, any agreement related to an object of legal interest becomes a contract and is protected by law.
It is not possible to speak of a contract or leadership or bilaterality does not always imply the concurrence of two or more people, but a correlation of obligations and rights.
In principle, the sole will of the parties is sufficient to create the legal bond or create obligations or to transform, modify or extinguish them.
4.2 -Parties or individuals.- the legal person, also called collective, "is the man collectively considered". Without being a natural person, it has legal status. The natural or natural person is the man individually considered. Therefore, the contract can be concluded between natural and legal persons or also only between the former or the latter.
4.3 -Legal consequences.- The contract is an institution mainly of a private nature, which presupposes that those who intervene in it are at the same level of legal equality, although there is economic disparity.
5.-Essential elements of the Contract
- The consent can be express or tacit. The object must be physically and legally possible, determined and determinable in terms of its species, exist in nature and must be within the trade.
In the absence of any of these elements, the non-existence of the contract can be invoked by anyone who has a legal interest in it, and the action to request it is imprescriptible; the effects do not subsist, not even provisional.
6.- Elements of Contract Validity
- The legality of the object, motive or determining end in the contract, the lack of it produces the absolute nullity of the contract.
The action to request absolute nullity can be enforced by anyone who has a legal interest, since it deals with provisions of public order.
- The capacity of the contracting parties is to say that they must be of legal age and be in full use of their mental faculties
The capacity can be of enjoyment or exercise when it only has the ability to enjoy it, it must be represented to enter into contracts and even obtain judicial authorization to carry them out.
- The formality or form that must be taken to perfect it. Absence of defects in consent such as fraud, bad faith, violence, lesson and error in contracts.
In the absence of the last three elements of validity, the contract will be relatively invalid, as long as one of the contracting parties asserts their action in time to demand the nullity of the contract, since it is prescribable; the relative nullity is capable of being validated.
7.- Legal consequences
Those that result from those specific legal situations recognized by the legal norms that arise by virtue of the realization of the different assumptions.
8.- Classification of contracts according to doctrine
- - They are those whose object is the celebration of a future contract, that is to say that it is a contract promise. - When only one of the contracting parties is bound by the conclusion of the contract. - When there are rights and obligations for both contracting parties. - They are those that subsist by themselves without the need for another contract for their completion. - They are those that depend on a main contract for its completion. - They are those whose scope is known by the contracting parties since their conclusion. - They are those whose scope is not known and who depend on a future and uncertain event for its realization. Onerous .-They are those that produce benefits and encumbrances for both parties. - Those that produce benefits for one of the parties and encumbrances for the other party. Instant. - They are those that produce their effects in a single act. Successive tract. - They are the ones that have their effects over time. - When the delivery of the thing is necessary. Consensual .- They are those that are perfected with the simple consent of the contracting parties. Formal . - Those that for its improvement must take a form established by law. (such as the purchase - sale of real estate that exceeds its value of $ 5000.00 that must be granted before the notary public)Consensual in Opposition to Real . - It is one that is perfected with the simple consent of the parties, without the need for the thing to be delivered. Consensual in Opposition to Formal .- It is one in which the parties are given freedom to express consent by the means they wish.
Classification of contracts according to the Code
Typical.- They are those that have a name and are expressly determined in the Civil Code, ahem. The sale, exchange, lease, supply, lodging, mutual, loan, deposit, etc. Our Civil Code calls them nominees
Atypical.- They are those that lack location in the substantive legal system, because the economic relationships of man, intense and varied, create legal situations not provided for by the legislator.
They can also be classified into:
- -
- a) Promise.
- Domain Translatives
a) Purchase - sale
b) Swap
c) Donation
d) Mutual.
- Translation of Use and enjoyment
a) Leasing.
b) Sublease.
c) Loan.
d) Deposit
e) Mandate
- They pursue a common purpose
- a) Civil association b) Civil society c) Livestock partnership d) Agricultural or rural partnership.
- Warranty or accessory
a) Deposit.
b) Garment.
c) Mortgage.
- Random
a) Life annuity
b) Play and bet
c) Buying hope
- Those who come from a controversy and put an end to it
a) Translation
Concepts of some Atypical contracts
Given the existence of multiple contracts that have been captured by the law as societies evolve, below we will list a series of concepts that define some atypical contracts.
Distribution.- Contract by virtue of which the distributor undertakes to acquire from the distributed, mass consumption merchandise, for its subsequent placement in the market, at its own risk and expense, stipulating a profit or resale margin as consideration for the intermediation.
Concession.- Contract according to which, a merchant or entrepreneur (Grantor) grants another merchant (Concessionaire) the right to purchase their products for subsequent resale in the name and on his own account of the latter, who makes his company available exclusively, and subject to a set of rules established by the grantor.
Supply.- Contract by which the supplier undertakes to perform periodic or continuous provision of things or services in favor of the supplier, and the latter undertakes to pay a price in money for it.
Joint Venture.- Contract by which a group of legal subjects make contributions of the most diverse species, which will not imply the loss of identity and individuality as a legal person or company, for the realization of a common business, which may be from the creation of goods to the provision of services, which will take place over a limited period of time, in order to obtain economic benefits
Franchising.- Commercial expansion method by means of which a business owner authorizes another person to market products or services with his registered name and brand, strictly observing a system that he stipulates. In return, the franchisee pays fees and a royalty and bears the costs of starting the service.
Prepaid Medical Benefit: It is the contract by which periodic fees are advanced establishing the health service as a future legal situation
Trust.- there is a trust contract when a person transfers the fiduciary ownership of certain assets to another who undertakes to exercise it for the benefit of whoever is designated in the contract and to transmit it to the fulfillment of a term or condition to the settlor, the beneficiary or the trustee.
Merchandising.- There is a merchandising contract when the one who owns the domain right makes contracts, simultaneous or exclusive, with producers in order to launch items or services on the market
Bank checking account: contract by which a person deposits amounts in cash in a bank, which can be withdrawn at any time by means of checks, while the bank uses these amounts in its other banking operations.
Underwriting or subscription of issues.- Underwriting or subscription is a contract entered into between an investment bank or other financial entity and an issuing company to ensure, or to make its best effort, in the placement of an issue of securities. Both parties benefit from these operations. The issuer due to the possibility of achieving an immediate capital contribution, and the underwriter by obtaining the profit derived from the difference between the subscription value and the subsequent sale price of the securities.
CHAPTER II
FRANCHISING
Origin and Historical Background of the Franchise
The franchise agreement as it is known today is a relatively new phenomenon. Although historically franchises have been used as a means for the provision of public services, only in this century have they been used by the private sector as a marketing system applied to goods and services.
The development of the franchise concept dates back to the 12th century. However, there are two very marked periods in the development of franchises as a commercial and business system: the first, from the second half of the 19th century and the beginning of the 20th, and the second from the post-war period to the present day.
Background in the Middle Ages. The origin of the word franchise dates back to the Middle Ages, a period in which a sovereign granted or granted a privilege to his subjects, who by virtue of it could carry out activities such as fishing and hunting, reserved in any case to certain areas of the kingdom. Such authorizations or privileges were designated using the term "franc." Likewise, in France, the cities with "frank letters" were those that had special privileges that guaranteed them certain freedoms or autonomies, such as the permanent exemption from paying tribute to the King or the lord of the region.
Also at that time the Catholic Church granted, to certain land lords, authorizations to act on their behalf, in the collection of tithes owed to the church, allowing a percentage of what was collected to be for them as a commission and the rest for the Pope.
The beginning of the Franchise in the Modern Era. The first antecedent of franchising in the United States was probably the granting to individuals, by legislative means, for the exploitation of some public services or "public utilities" such as the railroads and banks.
Although the granting of these rights implied administrative supervision over the operation of the services, the exclusive right of exploitation allowed individuals to obtain significant profits.
In this way, the franchises carried out by the government constituted a means to develop the provision of these services in a fast way and without the use of money or public funds.
First Franchise Systems. In the United States during the 1850s to 1860s, the Singer Sewing Machine Company resolved to change its basic operating structure, establishing a network of dealer / vendors who were charged a share for the right to distribute their sewing machines in territories specific due to the high labor costs involved in sustaining numerous direct sellers. Although Singer maintained this scheme for only ten years, making Singer one of the most recognized brands in the North American territory, it laid the foundations of the current franchise system, this having been a Product and Brand Franchise, giving rise to the elaborate franchise systems that we currently have.
Notwithstanding the above, the massive use of the franchise system by the private sector began in North America in 1865, at the end of the War of Succession, as a way of expanding the activities of northern industrialists in collaboration with travelers and merchants from the south and West.
Such is the case of manufacturing companies that in the absence of capital and trained personnel to develop and operate retail establishments, they granted exclusive distribution rights to independent merchants.
In 1898, General Motors adopted a similar system, since it did not have the resources to open its own points of sale, seeing the need to grant concessions, a system successfully used in the automotive industry today. The oil and auto parts companies followed the example of the previous two, achieving with this system to expand the distribution of their products, without their own capital or risks.
At this same time, the soft drink industry also began to use the franchise system. In this case, a bottler (franchisee) received the concentrate, or the right to produce the concentrate, through the use of a formula, together with the right to produce the soft drinks, identified with the franchisor's brand, and distribute them in an exclusive area.
For its part, the franchisor carried out the advertising, marketing and other support services, requiring the franchisee to produce the soft drinks, obviously under previously defined strict quality criteria.
In 1899, by using this system, the Coca-Cola company became the world's first bottler. At that time, Coca-Cola directly operated their soda fountains where they sold their product. However, some investors managed to convince the firm to grant them the right to be supplied by Coca-Cola with the concentrate necessary to bottle the drink at the franchisee's facilities, who would be in charge of distributing it regionally. The franchisee thus absorbed 100% of the installation cost and was responsible for its management, in exchange for receiving the necessary concentrate for the product and centralized advertising support.
As demand for the product grew, Coca-Cola franchisees in turn sold franchises to others. In this way, they sub-franchised the business, in such a way that they acquired the concentrate from Coca-Cola which they then resold to their sub-franchisees at a premium. In this way, they made up for the lack of resources and administrative skills necessary to directly reach the entire national market.
In 1921, the Hertz Rent a Car company decided to expand its distribution network through concessions similar to franchises, being today, among others, a world leader in vehicle leasing services, with more than 370 franchises granted and 1076 points of sale. service operation.
At the same time in France, in that same year, the wool factory "La Lainiere de Roubaix" tried to ensure commercial outlets for the production of a new plant and for this purpose, it associated with a number of independent retailers linked by a contract that It guaranteed the exclusivity of the brand in a specific geographic sector.
Due to the importance of these events, which occurred in the United States and France simultaneously, many experts on the subject place the birth of the franchise system in 1929.
In the mid-1930s, after the great depression in the context of the great entrepreneurial dynamism that the United States was already experiencing, the Howard Johnson hotel and restaurant franchises appeared on the market, whose case deserves to be discussed.
This important and well-known chain had started in 1925 as an ice cream business with an initial capital of US $ 500, obtained from third-party loans. The business evolved into a successful chain of restaurants, with the unique characteristic of having a bright orange roof.
Mr. Johnson, given the lack of financial resources necessary to open new restaurants, used the franchise method as an expansion system. This is how I entered into a franchise agreement, with a university colleague, through which he promised, on the one hand, to sell him ice cream and other products related to the business, and on the other to help him with the design, installation and supervision of the restaurant.
The franchisees had no prior experience in the restaurant business. However, through franchises, their owners obtained the benefits that the franchisor granted them, such as experience and the opportunity to benefit from the profits of a proven concept. In return Howard Johnson made a profit from the products he sold to his franchisees.
The Great Postwar Boom. Once again, the United States is the protagonist of the development of franchises, in the middle of this century. The greatest growth in franchises occurred after World War II.
Different social, economic, political and legal factors were what made the postwar period a favorable climate for the development of the franchise. A growing economy and population created a rapid demand for goods and services, and an opportunity to develop new businesses.
Likewise, the return from the war of thousands of ambitious men with basic knowledge, with little experience in the creation and management of companies, but with the intention of establishing their own businesses and sometimes stimulated by the ease of financing offered by the postwar North American Government., also contributed to the consolidation of the figure.
The franchising method allowed enterprising but inexperienced people to start their own businesses with training and supervision of an entrepreneur with extensive knowledge of the business he intended to franchise. Likewise, businessmen who had innovative concepts or experience in a specific field found that through franchises, they could exploit these concepts without the capital required for another type of business.
Definition
The franchise is defined as a system of collaboration between two legally independent parties, linked to each other through a contract by means of which one of the parties, the franchising company, is based in exchange for a certain economic remuneration, the right to use its trademark and its business “know-how”, for a limited time and in a specific territory.
It is a (vertical) agreement whereby the owner of a trademark, trade name or other distinctive marketing presentation (franchisor) grants a license in favor of a retailer (franchisee) for the use of his mark, trade name or presentation, and to arrange your establishment according to the distinctive or format associated with the franchisor
Basically franschising is a kind of symbiosis. One party, known as the franchisor (franchisor), licenses an independent merchant, called the franchisee (franchisee), to sell its own products or services.
The Franchise responds to the need for a constant renewal of the market offer, forced by the unstoppable and growing appearance of new competitors and the demand to offer new services.
The Franchise achieves a greater approach to the consumer through a well understood “specialization ”, that is, focused on a better knowledge of the product and, above all, better service and attention to the consumer.
According to Meyer, H. in his book entitled Marketing , Retail Sales defines franchises, concessions or licenses, as a contractual agreement whereby a parent company (franchisor) grants a small company to an individual (franchisor) the right to do business under specific conditions.
Meyer, H. and Kohns, S. establish that the time during which a license agreement is valid is called followed by the contract and can range from five years to perpetuity; where most agreements are for twenty years. After the period has ended, the franchisor often has the right to buy back or resell the unit.
On the contrary, Kennedy maintains that franchising is a privilege granted by a government body to an individual, a partnership or a public limited company, to use a public company, a street or a highway, or the space above or below the street or highway. The franchise can be for a fixed term of years, for an indeterminate period or in perpetuity.
According to Phillips Kothler in his book entitled Marketing Management, he establishes the franchise or concession concept as an agreement with the concessionaire in the foreign market, offering the right to use the manufacturing process, the brand, the patent, the trade secret and others. points of value, in exchange for fees or royalties.
According to Ambrose Bierce, 'A good business plan developed from solid market research that tells you, the entrepreneur, that there is sufficient and reliable demand for your product or service in a particular location, is a key factor in business success. You will need to do additional research on whether becoming a Franchisee of a business in that line of business is an additional success factor, if so, then you should evaluate which company can offer you the best advantages.
For Arrubia Paucar, "franchising is defined as the concession of a brand of products or services to which is added the concession of a set of sales methods and means"
It can also be defined as “Concessions of a brand or product or services to which is added the concession of a set of methods and means of its own so that the concessionaire company ensures the rational exploitation of the concession, managing the company in such conditions that allow achieve the best profitability for the grantor and concessionaire
The franchise contract is the document that clarifies the type of relationship between the franchisor and the franchisee within the franchising system: showing that the role corresponds to each in the development of the business, their responsibilities, rights and limitations. In this way, once the franchising operation is well defined, with its elaborate operation manuals, it is possible to start thinking about the formalization of the franchise contract
In its most complex form, the business license format is a broader and more continuous relationship that exists between two parties, often comprising a full range of services, including site selection, training, product delivery, marketing plans, and also funder.
The spectacular growth of dealerships represents the rapid increase of two trends: the rush of individuals to become their own bosses and the need for companies to find more efficient and cheaper ways to expand.
Business format aimed at the commercialization of goods and services, in which one person - natural or legal - grants another for a specified time the right to use a trademark or trade name. This process also includes the transmission of the necessary technical knowledge that allows to commercialize, in a uniform way, certain goods and services with commercial and administrative methods proven in different markets.
In the franchise, it is found that the license or concession for the use and exploitation of a commercial name and / or brand is only one of the objects of the agreement. In franchising, in addition to granting the license for the non-exclusive use and exploitation of its brand or commercial name, the franchisor transmits to the franchisee a range of knowledge and experiences that allow the latter to carry out the efficient operation of the business of the franchisee.
One can conclude “The franchise is a development technique that allows a company, the franchisor, to license a set of industrial or intellectual property rights related to brands, trade names, trademarks, utility models, designs, rights of author, Know How; to a third person, whether natural or legal, in order to obtain economic returns from the resale of products or the provision of services to end users.
The aforementioned, allows us to summarize in a simple way, that a franchisor has the right of name or registered trademark and sells the right to a franchisee; knowing this as a product license.
Legal nature
It is a consensual contract that is perfected by the mere consent of the parties. It is bilateral, since the contract produces rights and obligations for both parties. It is an atypical contract, since it is not regulated in our law, which is why it is known as an unnamed contract. It is an onerous contract, since each of the parties obtains an advantage from its provision.
Marzorati states that in its dynamic and evolved conception, the commercial franchise called business format franchising, is a company contract, by which a method is transferred to administer and manage a business to which a territorial monopoly of distribution of a product is granted or a service identified with a trademark of the grantor and subject to its strict control and technical assistance on an ongoing basis
The most authoritative doctrine qualifies FRANCHISING, as a business collaboration contract, which basically implies a collaboration model between different independent companies, so that, through their common action, the development of the business more effectively. But although there should be a balance of power, in reality it is the franchisor who submits to the franchisee and makes two elements available to him: the first, it is a business technique to ensure the success of the franchise and secondly, product, brand in the market they enjoy a fame and good name in the market. Such elements being uniform for all franchisees that make up the franchisor's network, thus creating a distribution image. For other authors,The franchising contains all the characteristics of the concession contract stating that the regulatory norms of the same are applicable and adding the norms related to the transfer of brands, commercial designations and technology.
- Economic function of the Franchise
The investment made for the operation of the company depends on it, but it may receive some financial contribution from the foreign company as a loan. That is why it also constitutes an unconventional financing modality.
The Franchising contract is a contractual modality that moves large amounts of capital and human resources, benefiting the parties to the contract and the general public since in this way the best supply in the market is achieved.
It is a contract that facilitates the circulation and distribution of goods and services, offering certain investment security, since a product or service is provided, already entering the market, not only at the national level, but many times the product is known internationally
- Characteristics
Its main features:
Onerous: since one of the parties (franchisee) obtains an advantage in exchange for a monetary consideration in favor of the other (franchisor)
Commutative: because from the moment of the celebration each of the parties knows the obligations and advantages that correspond to it
Non-formal: no specific way is required in which it must be implemented
Atypical: it is not legally regulated or in the Civil Code or national law.
Consensual: because it is perfected and generates the corresponding legal effects from the moment the parties express their consent.
Bilateral: because each of the parties is bound by the other, with reciprocal benefits for each one
Successive Tract: the obligations that are generated for each party do not end at the time of the conclusion of the contract, but remain beyond it
The franchise system has some basic premises to be able to develop in perfect conditions:
The Contract is the fundamental piece of the entire Franchise system. It must be very studied, detailed, clear, precise and of certain compliance.
Concession of use of registered trademark. The strength and solidity of a franchise network is supported by the homogeneous brand image that is transmitted to the general public through each and every one of the centers (logos, adaptation and decoration, labels and distinctive signs). This brand image also provides recognition in front of future customers.
Transmission of the set of knowledge and experiences that constitute the Know-how, which are the set of knowledge, methods and systems developed by the franchisor in a practical way, not patented, and derived from the experience of the franchisor in the developing your formula or business concept of success
Concession of a territorial exclusivity and duration of the same.
Definition of the economic parameters for access to the franchise network: Entry fee, "Royalties" or Operating Canons on sales and advertising, which will be the financial obligations of the franchisee. These payments are justified by the right to use the brand, the training and assistance received and the resulting benefit from participating in the economies of scale generated by the chain itself.
That the object of the franchise is an original business concept, reproducible in a homogeneous way and durable over time.
Complete and extensive initial training of the franchisee and his staff, acting as a guide and advisor at the beginning of the activity, supporting the franchisee in the selection, adaptation and decoration of the premises, providing communication tools and, ultimately, solving any problems that may arise..
Ongoing service and assistance to franchisees.
Finally define what will constitute the "Package", which is the documentation to be delivered to the franchisee and is a practical guide on the daily operation of the business. The aforementioned franchise Package is made up of the following elements:
A good franchise must above all be a proven and transferable success that can be replicated by the franchisee in its territory. A good formula has the following characteristics.
It is related to the commercialization of a good quality product or service.
Demand for the product or service is universal, or at least not limited solely to the franchisor's home region.
It leaves the franchisee already established in a place a right of first refusal at the time of implantation of one or more franchises in its territory.
It provides for an immediate transfer of know-how and an effective training of the franchisee in the marketing techniques and the methods of the franchise in question.
It does its tests with a pilot company.
It establishes the modalities of a continuous relationship between the franchisor and the franchisee in order to improve the operating conditions of the franchise and to exchange innovations, ideas for new products and services, etc.
It explicitly describes the initial contributions (teaching, training, know-how) and the permanent ones (marketing supports, advertising, promotional actions, research and development, various services) of the franchisor.
It expresses the immediate payments (initial rights) and continuous (canon) that the franchisee must make.
It involves the franchisee in the process of defining the future directions of the franchise and makes him participate in the life of the franchise.
It provides for a procedure for the renewal, renegotiation and cancellation of the franchise contract, as well as a possibility of redemption for the franchisor.
The franchise offers an interesting option compared to conventional or controlled vertical structures. Indeed, in a franchised network, the investment in each store is made by the franchisee, who owns the store. From the franchisor's point of view, setting up a franchise network enables you to quickly and inexpensively have an international business network, without investing directly in the ownership of the network, but controlling it by contract.
The franchise is an integrated distribution system, controlled by the franchisor, but financed by the franchisees. A successful franchise is a good partner in which the success of the franchisor and that of the franchisee are inextricably linked.
- Franchise classes
There are four different groups of franchises:
Production Franchise
It is where the franchisor, in addition to being the owner of the brand, manufactures the products that it sells in its franchised establishments.
Here the franchising company is the one that manufactures the products and is also the owner of the brand, the Know-how for which it grants franchises for the franchisee to produce the products. Therefore, the brand that distributes and the one that manufactures is the same.
The franchisor acts as a purchasing center, selecting and negotiating the best products and the most advantageous conditions with the suppliers.
Service franchise
It is the most dynamic type of franchise with the most projection. The franchisor assigns the right to use and commercialize an original formula or system of any type of service with a name already accredited and that has demonstrated its effectiveness at the level of acceptance.
It is the exploitation of a certain service whose original formula is owned by the franchisor, who transmits it to its franchisees. This type of franchise is the one that is currently booming.
Within this type, the franchisor offers the franchisee an original and specific formula for the provision of services to the consumer. For its part, the franchisee provides customer services with the same level of quality and at the same prices. It is important to highlight that due to its abstract nature, this kind of agreement requires constant collaboration and transmission of Know-how by the franchisor.
Among the companies that use this system, we can mention the fast food chain McDonalds, Kentucky Fried Chicken and Donkin Donuts .
Industry franchise
It is made up of two industrialists: the franchisor and the franchisee. The manufacturer of the product assigns the right to manufacture and market the product under its original brand. It requires a strong capital investment. Here the link is legal and economic, transferring technology, name and brand of the product. The franchisor - who must be the owner of the industrial property - cedes to its franchisees the technology and raw materials necessary to manufacture a certain product and later sell it on the market.In this type of franchise, one industry decides to transfer its technology and its technology to another. industrial property. In this case, the franchisor acquires the right to produce and distribute the franchisor's products using the acquired technology. The most famous examples are Coca-Cola, Yoplait, Royal Canin, etc.
Franchise-Corner
It occurs when a traditional merchant agrees to allocate a part of his premises exclusively to a certain brand, under the following rules: In the designated area there should only be products with the image and the brand in question and there is greater independence and less exigency by the franchisor. It takes place within a commercial establishment, by departments, in which there is a franchised space. In this space, the products are sold or the services object of the franchise are provided, according to the methods and specifications of the franchisor. It is one that takes place within another commercial establishment, with a franchised space where the products are sold and / or the franchisor's services are provided in accordance with its specifications.
Master-franchise
This modality consists of exporting a franchise from one country of origin to another, through the figure of the master-franchisee, a natural or legal person, to which the original franchisor sells the rights of its franchise so that it can develop it in the country of destination. The master-franchisee is the manager and responsible for the development and representation of the franchisor exclusively in his country and will be in charge of selecting the franchisees and adapting the business to the specific characteristics of the country in which it is developed. It is the most used system to extend a franchise internationally. It is the contractual relationship that a foreign franchisor establishes with a natural or legal person from the country in question,the latter acting as a franchisee and at the same time as a franchisor of certain points of sale that are inaugurated, being directly responsible for the development and representation of the franchisor exclusively in their country or in a region of countries. The master franchisee is in charge of the pilot establishment, is responsible for the selection of new franchisees, investment, global advertising of the network and in general all relations with the franchisees in their territory.This system is used when the franchisor does not You want or do not have the financial resources and the necessary personnel to develop the franchise directly in the foreign country.This method is also effective in overcoming cultural differences that could prevent the franchisor from directly accessing a new market for its products or services, due to the franchisee's knowledge of customs and uses and even of paperwork in their country, can serve as a bridge for the franchisor to expand their businesses, without the need to get directly involved, in many countries simultaneously and in a time that is not comparable to the time it would take to understand such customs and uses, with the costs that this would imply.without the need to get directly involved, in many countries simultaneously and in a time that is not comparable to what it would take to understand such customs and uses, with the costs that this would imply.without the need to get directly involved, in many countries simultaneously and in a time that is not comparable to what it would take to understand such customs and uses, with the costs that this would imply.
Distribution franchise
The franchisor acts as an intermediary in purchases, selects products that are manufactured by other companies and distributes them through its franchised points of sale under advantageous conditions. The franchisor transfers the products that it manufactures and / or the brand to its franchisees to change in royalties or higher purchase prices. Its basic characteristics are focused on the development of the product or service, rather than on the operation of the business. The franchisee is granted more freedom, but at the same time less operational contribution. In this case, the franchisee is set, the products that he has to sell with the contribution of the brand, eg. Food products, textiles, etc. in which the franchisor assigns the distribution of its products to the franchisee, together with the right to use its commercial name.
Business Format Franchise.
In this type, the franchisor offers the franchisee a business that has been standardized down to the smallest detail and reduced to manuals, in such a way that together with the assistance of the franchisor, they allow the franchisee to operate exactly as would make the franchisor in his own business. The business format refers to all matters, including technical, managerial, marketing, premises suitability, customer service, etc. The business format franchise corresponds to the modern concept of a business franchise. It has been developed mainly in service and mixed franchises (distribution and services)
Third-generation format franchise:
The franchisee receives a complete system to operate the business, a total plan that includes the assistance by the franchisor in finding the right place to set up the business, training and staff training in all areas of it. This training is extended during the existence of the franchise agreement. The franchisor grants the franchisee the exclusivity of the territory, and the latter sells or distributes the products or services exclusively. The franchisee receives: procedure manuals, advertising support, assistance in the purchase of adequate equipment and sources of raw materials or products
Conversion Franchise.
These are those agreements in which an already established business accesses a franchise chain, adopting its characteristics related to image, trade name, joint publication, etc.
Multi-franchises.
The franchisee manages different franchises that are usually complementary and not competitive. This is the case of franchisees who take over the exploitation of different vein points of different franchise chains.
Multi-franchise.
The franchisee has more than one establishment of the same franchisor, and it corresponds to a specific area in which he can open the number of establishments he deems appropriate.
Active Franchise.
It is one in which the franchisor demands that its franchisees be the ones who personally manage and run their establishments.
- Subjects that make up a franchise
Two subjects are involved in the franchise agreement:
The Franchisor or Franchisor
To be a franchisor it is not only necessary to have a solvent company with commercial prestige in the sector, it is also necessary to have an excellent Business Concept, which provides novelties and differential values in the product, in the service or in the way of marketing it. This is the true meaning of the concept of FRANCHISE.
However, the success of the system is mainly based on having previously experienced the entire franchise procedure through a pilot establishment, which will have allowed us to correct possible errors, as well as increase the knowledge necessary for a better development of the concept of FRANCHISE, providing what is in fact one of the bases of the franchise: Provide experience to the franchisee.
Having achieved the two main objectives, which we could summarize in a perfect approach to the franchise system to be implemented and the experience of the pilot establishment, it is necessary to transmit all that "know-how" (know-how) through the various documentation that is necessary and that constitute the Manuals, as well as Pre-contracts and definitive Contracts.
Therefore, the FRANCHISOR must be a natural or legal person with these characteristics:
- Has prepared and experienced, for a representative time and with good results, a commercial formula differentiated from the competition, developed in pilot establishments, owned or not.
2. That they are the owner of the property of the brand with which they are going to market the product or service. That they have the capacity to train their future franchisees, giving them all the technical, business and logistical support that is necessary.
The Franchisee or Franchiasee
The franchisee is any natural or legal person who, through certain conditions, obtains the right to market and exploit products or services under uniform and experienced techniques with proven profitability and with a registered trademark.
In return for the contributions of the franchisor, the franchisee must:
1. Pay the total investment necessary to install and decorate their establishment according to the franchisor's detailed project
2. Payment to the franchisor of the entry fees and periodic payments established in exchange for the services permanent he receives from him
- Have sufficient stock in quality and variety according to the minimums established by the franchisor. Application of the sale price recommended by the franchisor.
5. Respect for all aspects related to the corporate image of the franchise. Accept the franchisor's periodic controls and continuously inform of the evolution of your business, accepting the possible modifications that the franchisor may impose to obtain positive results
7. Respect the territorial and brand exclusivities
8. Commitment to attend the training courses that the franchisor carries out
9. Use the working methods, commercial guidelines and general management that the franchisee transmits through the Manuals
10. Respect the characteristics of the commercial and management system that define the franchise in question.
Elements of the contract
The elements that make up the essence of the commercial franchise contract, the authors agree, always present both nationally and internationally, are the following:
1. Brand License: It makes the essence of the commercial franchise contract that the franchisor is the owner of a brand on a product or service, since the clientele is attracted by the reputation and prestige of the same, and of course that the In addition to using your brand, the franchisee also uses your distinctive signs and symbols, together with a series of rules regarding the way the franchisee acts, regarding the activity and administration to be carried out.
2.Transfer of a know-how: The franchisor has the obligation to put the franchisee into practice with respect to the conduct, structure and organization of the business and of course, he must follow the instructions to the letter, achieving uniformity in the product and in its presentation. This can include from the decoration of the premises, as well as the list of suppliers and financial entities.
3.Regalías or Canon: Some form of remuneration from the franchisee to the franchisor must be established, since we are facing an onerous contract, in consideration of services, assistance, brand, etc. During the term of the contract.
4. Territory: It is about the delimitation of a territorial area in favor of the franchisee where the contract will develop, it can be an essential element for the success of the commercial operation.
5. Assistance from the franchisor to the franchisee: it may be condensed into an operating manual, depending on the degree of the terms of the agreement, and a minimum assistance and service center may be created for the franchisees that make up the chain, where market information is provided, technique or just shopping.
6. Non-competition and / or the possibilities of sub-franchising: On the one hand, expressly preventing the possibility of the franchisor conducting competitive business and, on the other hand, prohibiting or not the possibility of subcontracting.
7. Confidentiality: It consists of the obligation of secrecy, since the franchisee has access to confidential information of the franchisor, extending even for a reasonable period after the conclusion of the contract.
8. Term of the Contract: In general, the parties tend to establish a sufficiently long term to recover the initial investment made by the franchisor. In our right and by virtue of the autonomy of the will, the parties can terminate without cause and at any time. Ultimately, what is advisable is a term of between two to five years with the option to renew it for equal terms, including automatically.
- Advantages of the franchise
According to the US Small Business Administration, the franchise has several advantages over independent retailers. They are:
Reputation: It is an established and well known licensing system, the new dealer does not have to work to establish the reputation of the firm. The product or service being offered is already accepted by the public.
Working Capital: It costs less money to run a dealership business, because the franchisor gives the dealership good inventory controls and other means of reducing expenses. When necessary, the franchisor can also provide financial assistance for operating expenses.
Experience: the advice given by the franchisor compensates for the inexperience of the new owner.
Managerial Assistance - A small independent warehouse owner has to learn everything, and a seasoned retailer may not be a master at all aspects of finance, statistics, marketing, and sales promotion. The best franchise companies give the dealer ongoing assistance in these areas.
Profits: by assuming reasonable franchise costs and supply agreements, the dealer can usually expect a reasonable profit margin, because the business is run with the efficiency of a chain.
Motivation: Because the dealership and franchisor benefit from the success of the operation, they both work well to achieve it.
Franchisor Advantages
For the Franchisor, the conclusion of this contract includes the following advantages:
It facilitates deep and accelerated penetration in a market that you do not control. It is known that many companies do not have sufficient conditions to grow violently with their own resources, since these require large capital and the need to manage their own personnel. The Anglo-Saxons call this advantage with the acronym OPM, which means "other people money" (other people's money)
Have access to a new source of capital, without losing or diluting control of the marketing system.
Avoid high fixed costs that generally involve a distribution system for your own warehouses.
Cooperate with independent distributors, but highly motivated by owning their businesses.
Cooperate with well-integrated local businessmen in the middle of the city, the region or the country
Create a new source of income based on the commercial technical know-how you have.
Perform a rapid increase in sales, having a snowball effect success.
Benefit from economies of scale thanks to the development of the franchise system.
Franchisors provide their franchisees with initial and continuous help. The initial services fundamentally comprise: a market study, a franchise restaurant location study, assistance in the rental negotiation, a conception of the interior decoration of the point of sale, the training of the workforce, accounting and financial management models. Ongoing services include operational monitoring, promotional material, training of cadres and employees, quality control, national advertising, centralization of purchases, information on market evolution, accounting and financial audits, approved insurance, etc.
Advantages for the FRANCHISEE
The motivation of the franchisee is mainly to benefit from the experience, the notoriety and the guarantee, together with the brand image of the franchisor. To this basic motivation are added the following considerations:
- Have the possibility of starting a company with little capital Reduce risk and uncertainty, since it is a project of proven success Benefit from better purchasing power from suppliers of the franchised chain Receive training and assistance provided by the franchisor.Have access to the best locations, thanks to the reputation and financial power of the franchisor.Receive help with marketing management and the financial and accounting management of the franchise.Have well-conceived premises and interior decoration Benefit from constant research and development of new products or services Have the possibility of creating your own business as an independent belonging to a large organization.
- Disadvantages of the Franchise Agreement
For the Franchisor:
It makes it impossible for you to have control over sales made to small retail businesses.
The profitability of the profits or profits that are obtained, will have to be distributed.
The franchisor loses a part of the franchise's profit, which would be his if he operated with his own units.
The franchisor assumes litigation risks that can be extremely costly. These problems are diluted when the franchise has been well designed.
For the franchisee:
The price of the product or service is established, and many times the volume of the products to be sold.
These contracts greatly limit the opportunities for individual initiatives or the franchisee's own.
They keep an unwanted partner for the duration of the franchise.
The growth of commercial activity is limited by the conditions presented in the signed contract.
There is less flexibility to transfer, sell or close the business. In fact, the franchisor is the one who authorizes the transfer of the franchised unit and, in the case of wanting to close it, the franchisee must generally pay a significant pecuniary penalty, when it has been agreed in the contract, as usual.
- Termination of contract
It is a long-term contract, due to the investment, the acquisition of new customers and the determination of the assigned area.
This prolonged relationship implies having to give a notice of termination of the contract, and if it is necessary to cover an indemnity, which must be agreed.
Given that the contract is not classified, the serious fault that would motivate the termination of the contract, nor the tacit renewal of the same, is not specifically contemplated. There must be a regulation that protects the weakest in the contractual relationship.
- Franchise in Peru
As we well know, the Franchise Agreement is an atypical figure, as far as our legislation is concerned, that is why it is generally based on established jurisprudence.
Although the practice of franchising in Peru began in 1981 with the arrival of the fast food chain KFC, it was not until 1993 that the favorable results of the economy created an ideal scenario for the massive entry of franchises. foreign companies in the Peruvian market.
According to the Commerce Department of the US Embassy, the amount invoiced for the franchises in Peru in 1998 would have been US $ 198 million; now, if only the main franchises according to sales level are considered, according to information published by Conasevfor that same year, they billed a total of US $ 72'198 million. Of this total, fast food / restaurant franchises had a 56.6% share and, by country of origin, local franchises had a 10.1% share.
In order to measure the impact of franchising on the Peruvian economy and on the dynamics of commercial activity, and based on the information collected, the following results were obtained.
Considering a sample of 44 franchises that currently work in Peru under the business format franchising scheme, it was found that they maintain 274 establishments together and have generated approximately 6,348 jobs, which implies an average of 23 employees per location.
Of the total number of companies, only 6 have entered the provinces, and only 5 have sub-franchised third parties, so in practice they function as their own businesses; 36 are master and individual franchises granted by foreign companies; the remaining 8 are local franchises that were developed after the arrival of foreign franchises as of 1995.
According to the country of origin, 66% of existing franchises in Peru come from the United States, while Peruvian franchises represent 18% of the market. The remaining franchises represent 16% of the market and come from Mexico (3), Brazil (1), Spain (1), Canada (1) and Argentina (1).
Of the US franchises, 52% belong to the fast food / restaurant sector, while in the Peruvian case 88% belong to this category. It is important to note that 50% of the franchises that come from other countries are concentrated in the laundry businesses (self-service and dry cleaning).
According to the type of business, the fast food / restaurants category is not only the most representative according to the number of companies (52%), but also the intensive growth in the number of units (they represent 68% according to the number of stores), thus as the fact that the number of employees required per location is greater than the aggregate average, increases the importance of this item as a generator of employment and a catalyst for commercial activity.
The entity in charge of regulating and registering Foreign Franchises in Peru is the National Institute for the Defense of Competition and Protection of Intellectual Property - INDECOPI, more specifically, the Office of Distinctive Signs - Foreign Technology Transfer Registration Area. It is this area that establishes the requirements to access the registration: application format duly filled out with the general data of the person, whether natural or legal (in addition to the representative of the latter), indication of the name of the holder of the distinctive sign that it will be a matter of exploitation (Certificate number, denomination, validity, etc.), respective payment receipt and other documents: Company Constitution, copy of the Foreign Technology Transfer Contract, etc.
The rules that regulate franchises in our country with which are detailed below:
- Decision No. 291 - Of the Commission of the Cartagena Agreement, on Treatment of Foreign Capital and on Trademarks, Licenses and Royalties, a rule that indicates the essential requirements for the registration of a foreign franchise, these are: identification of the parties (with express consignment of his birth and address), identification of the modalities that the transfer of the imported Technology presents, contractual value of each of the elements involved in the technology transfer, determination of the term of the contract, among others. Legislative No. 662: Law for the Promotion (legal security) of Foreign Investment. Supreme Decree No. 162-92-EF: Regulation of Legislative Decree No. 662. Legislative Decree No. 807: Law on Powers, Norms and Organization of Indecopi,as appropriate. Legislative Decree No. 823: Industrial Property Law.UO of Indecopi Administrative Procedures.
-Economic analysis of the franchise contract
The franchise contract is a contract known as atypical, it is also onerous and consensual, it is also called a modern contract but in reality this contract began here in Peru in 1981 with the Kentucky fried chicken franchise.
It is also deductible that this contract is very beneficial economically for the growth of a business since it allows the business to expand and immortalize the product and at the same time provides prestige, quality and familiarity with the product or also with the company.
In Peru the franchise is beneficial since it produces jobs and makes a business grow or expand in order to turn a micro-business into a large company.
From my point of view, different areas intervene in the franchise contract, that is, it includes the business, commercial, civil and contractual area and also generates rights and obligations and what is absurd is that it is not yet included within the legal system, I consider that This contract should be included as well as the factoring, leasing, etc. contract, since we are facing a legal void that can harm one of the parties that enters into this type of contract.
The best known franchises in Peru are: Mc Donalds, Pizza Hut, Burger King, etc. What are fast food establishments that are the busiest in these times since the pace of life has become faster and time must be used to the maximum, but the Peruvian businessman has not been left behind and based on these models It has also been expanding its horizons and thus we have: Pollerias Rokis, Pardo's Chicken There are also other companies that have not only grown nationally but also internationally, such as: Inca kola, Cerveza Cuzqueña and now the last Kola Real.
It can be concluded that the franchise contract creates economic benefits for the country and produces employment, greater product safety, which favors the consumer, so I consider that the franchise is important since it is aimed at the consumer and allows us to choose the product that we want to be able to locate it in different parts of the city and thus be able to forget about the monopoly that used to be in the country.
Conclusions
As a first conclusion, the potential that Peru has as a market to install new franchises stands out, since there is scope to develop new concepts in both products and services, since in this last aspect the market is not very saturated.
It must be considered that the country is currently emerging from an economic and political crisis. Therefore, as the situation improves, at the level of stability and wealth creation, the market will be activated, giving entry to a greater number of investments and companies, including those dedicated to franchising.
Based on this, it is considered by professionals in the sector that the Peruvian market may grow in the coming years between 10 to 20 percent per year.
The franchise market in Peru represents a turnover of approximately 320 million dollars and the creation of about 3,000 jobs. Most of these figures come from fast food chains that have reached a great development in recent years
The development of this market in the country responds to typical patterns of the evolution of this sector in any international market since it is normal that in a country international chains are the first to enter with a specific franchise model.
The number of franchises in the country would be between 70 and 80 brands, although there is no reliable record in which the exact number appears, nor more complete and precise statistics on this item.
The creation in 1993 of the new law for the treatment of foreign capital investments played a very important role in the system, because it allowed to open a little more international trade from that year, thus contributing to the growth of this business.
The trend in the franchise market in Peru is that although the fast food sector will continue to be the most important economically, it will be the service franchises that will gain more prominence, especially those that develop novel ideas that they can offer to an audience with new needs..
It is important to note that this market is mainly aimed at an urban consumer with a high and medium-high socioeconomic level, since in this country there still does not exist a large middle class comparable in size and economic resources to the European one.
Very few franchises have installed their stores in the provinces, almost all of them are concentrated in the capital, Lima. This is due to several reasons, perhaps the main one being economic, since, as mentioned before, the public with the highest purchasing power is in this city.
In addition, customs in the capital and provincial cities are still different, it is worth mentioning that the consumer in the provinces is not yet used to consuming so-called fast food and is more conservative in accepting new market concepts.
However, continuing with the above, little by little thanks to the media: television, newspapers, and especially with the arrival of the Internet, a similar culture in uses and customs is spreading throughout the country that will change in the short term. term these habits. Only a few franchises have been installed in Cuzco and Arequipa since they are the most important cities in the country behind Lima.
It must be taken into account that in some cases the possible franchisee does not have the professionalism required for the installation of the franchise, since it is still a relatively new concept, and he might think that it is enough to install a prestigious brand so that By itself it works so it may turn out that you neglect important aspects of the business.
In relation to this idea, there have been several cases where the master firm has preferred to install and manage its own stores rather than obtain new franchisees, since the experience with some of them has been negative. However, this phenomenon will be temporary as the employer acquires greater culture and professionalism with this activity.
In Peru, there is what has been called the "tropicalization" phenomenon, which consists of adapting the franchise to consumer tastes. It is not enough to simply apply the concept and model of the chain, but the tastes and needs of potential customers have to be carefully analyzed before entering the market, since there have been cases in which successful franchises in the United States They have not been able to properly adapt to their audience in Peru, so they have been forced to close.
Precisely in relation to the above, it has been the case that franchises are no longer exclusively imported, clearly Peruvian franchises are beginning to invade the market with considerable success in some cases, some of them being sales leaders in certain products. Among the national chains we have: Mediterráneo Chicken, Bembos, Pardo's Chicken, Alfresco, Bohemia, Medical Alert, among others.
As a summary of these conclusions, it can be said that in the Peruvian market there are the necessary conditions for the development of this type of business, since, as mentioned before, there are still sectors that are not very saturated and in which there would be greater commercial opportunities.
Franchises
Contributed by: Carmen Verónica Pando Peñafiel - [email protected]
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