Nowadays, it is quite common that a popular brand or a product has its branches across the country or even has global presence. For Instance –The stores of footwear “BATA” can be found in almost all the countries. Practically, it is not possible for a single man to do this alone. Now, the question emerges is how can a business be expanded by using the name of that popular product.
The most popular way of doing so is the concept of “Franchise”. It is a commercial relationship between two parties wherein the first one allows the other to use its trademark or goodwill in consideration of some amount. The concept offranchise derived its fundamental from the principle of agency which involves a party working as a commercial agent of the principal party.
Franchise arrangement in UAE Law
In UAE, there is no special laws governing franchise and nor this term has been defined anywhere. The Federal Law No. (18) of 1981 provides some reference of it. It is an arrangement in which an agent engages in the production, selling, or rendering services on the direction of Principle, in lieu of a commission or a profit. Some provisions pertaining to franchise are also provided in the following laws-
- Federal Law No. 18 of 1981 on Organizing Commercial Agencies and its amendments.
- Federal Law No. 5 of 1985 on Civil Transactions.
- Federal Law No. 18 of 1993 on Commercial Transactions.
- Federal Law No. 37 for the Year 1992 for Trade Marks.
- Federal Law No. (7) of 2002 On Copyrights and Related Rights.
- Federal Law No. 31 For the Year 2006 Pertaining to The Industrial Regulation and Protection of Patents, Industrial Drawings, And Designs.
How to get a Franchise?
In UAE, for an agent to get a franchise, it should first get a “license of trademark” authorizing the agent to use the trademark. After getting the same, the parties will enter into a franchise agreement and it shall be registered with the Ministry of Economy. It is important to note that the language of the agreement must be Arabic, and it shall should satisfy all the requirements of a valid contract.
While setting up a franchise, the most preferable form of business organisation is limited liability Company. Apart from that, the franchisors also prefer to enter into a joint venture with a domestic entity to explore the local market. It is considered a separate legal entity and the parties need to obtain license and trade certificate for it. This joint venture is mainly used for consumer goods and services, and the luxury sector is generally kept out of purview of this. If the franchisor is foreigner, he might be reluctant to fully commit himself in joint venture through capital investment.
Essentials of a valid Franchise
There is no prescribed time period for a franchise agreement, and the parties are allowed to fix the tenure as per their convenience and business strategies. In the concept of franchise, it is observed that the price uniformity is maintained. The franchiser determines the price of the product, and the seller is bound to sell the product only as per this pre-determined price. The parties also enter in non-compete as well as non-disclosure agreement, which are legally enforceable in UAE. The widely used mechanism for the resolution of disputes is Arbitration.Further, as per Article 8 of UAE of Commercial Agencies Law, the franchise agreement can only be terminated on account of some material reasons.
In-Short
The concept of franchise is gaining popularity and it will flourish in the coming years. The most important thing is the franchise agreement as it sets out all the details of the relationship between the parties. So, it is strongly advisable to take assistance of a specialised legal attorney while drafting the same to protect your interest.