Business franchising among small and medium scale enterprises (SMEs) in the Philippines

Lately, there has been a boom in the franchising of businesses in the Philippines, even among small and medium scale enterprises (SMEs). When handled properly, franchising a business from the point of view of the franchisor is a sure-fire and high-yielding way of generating huge returns on investments and business expansion. While for the franchisee, it guarantees a relatively safe business model that may bring about above-average income. A friend with a thriving travel agency recently asked me to draft a franchise agreement for him. Just for some ideas and owing to space constraints, the first pages (with some details deleted/edited) are shown below:

FRANCHISE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement made and executed by and between:

_________________, a single proprietorship duly registered and existing under Philippine laws with principal office at ____________________, represented herein by its owner, _________________, Filipino citizen, married, of legal age, hereinafter referred to as the FIRST PARTY.

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_________________, a single proprietorship duly registered and existing under Philippine laws with principal office at ___________________, represented herein by its owner, ____________________, Filipino citizen, single, of legal age, hereinafter referred to as the SECOND PARTY.

WHEREAS, the FIRST PARTY is a duly registered business entity under the laws of the Republic of the Philippines and is engaged in the business of selling/reselling and issuing domestic and international air passenger tickets, ship and ferry passenger tickets, bus trips, resort and hotel bookings, theme park and adventure park tickets, package tours, and all other travel trade services.

WHEREAS, the FIRST PARTY has developed innovative unique methods of merchandising, promotion, quality control and distribution of said products and services.

WHEREAS, the SECOND PARTY is interested and has sought FIRST PARTY to enter into a Franchise Agreement with the latter and set a franchise outlet particularly described as follows:

Franchise: ___________________________

according to the preferred area of the SECOND PARTY who has secured the availability of the desired commercial area;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed to strictly comply with the following terms and conditions, to wit:

1. The FIRST PARTY hereby awards the Franchise Rights to the SECOND PARTY commencing on the signing thereof.

2. Franchise fee – The Franchise Fee shall be TWO HUNDRED FIFTY THOUSAND PESOS (Php 250,000.00) for the establishment and operation of one (1) Franchise Outlet, to be paid by installments, as already stipulated in an earlier agreement (i.e., the memorandum of agreement dated ____________ which shall form an integral part of this Agreement and hereto attached as Appendix A) between the parties. Further, business consultation shall be included in the Franchise Fee, which is non-refundable.

3. Duration – This Agreement shall be effective for a period of five (5) years. The commencement of the period shall be reckoned from the date of the signing of this Agreement. This Agreement may be renewed subject to payment of fifty percent (50%) of the Franchise Fee’s prevailing market rate at the time of renewal.

4. Exclusivity of Franchise Location –The FIRST PARTY shall not set-up another Franchise outlet within _____________. Provided, that, the SECOND PARTY, his relatives/family members within the third civil degree of consanguinity or affinity, shall not engage in a similar business that might be competitive or in conflict with the franchise in said franchise location during the effectivity of this Agreement, and within three (3) years after the expiration of the term of this Agreement.xxx