Franchises in Colombia, Legal Regulations and Features
| Autor | Maria Andrea Camacho |
| Cargo | LL.M. en Derecho Americano con énfasis en Negocios de Boston University, Curso Intensivo de Mediación y Negociación de la Universidad de Harvard con convenio con MIT y Northeastern University |
| Páginas | 327-345 |
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artículo de reflexión
Franchises in Colombia, legal regulations and features
Franquicias en Colombia, características y regulación legal
dOI: http://dx.doi.org/10.14482/dere.44.7167
María Andrea Camacho Solana*
Universidad del Norte (Colombia)
* LL.M. en Derecho Americano con énfasis en Negocios de Boston University, Curso Intensivo de Mediación y Negociación de la Universidad de Harvard con convenio con MIT y Northeastern University. Research Skills y Legal English de la Universidad de Boston. Especialista en Derecho Comercial de la Universidad del Norte y abogada de la misma universidad. Docente del Departamento de Derecho de la Universidad del Norte. macamacho@uninorte.edu.co
REVISTA DE DERECHO
N.º 45, Barranquilla, 2016 ISSN: 0121-8697 (impreso) ISSN: 2145-9355 (on line)
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Abstract
ThisȱarticleȱwillȱstriveȱtoȱreĚectȱonȱtheȱissueȱofȱFranchiseȱinȱColombiaȱandȱitsȱ developmentȱoverȱtheȱyearsǯȱ
ItȱwillȱalsoȱanalyzeȱhowȱlawyersȱhaveȱhandledȱfranchiseȱcontractsȱusingȱdiěerentȱwaysǰȱforȱexampleǰȱwithoutȱhavingȱtheȱCentralȱBankǰȱtheȱAndeanȱdecisionȱ ŘŚȱandȱŞřǰȱinȱwhichȱdispersedȱmannerȱgivesȱinformationȱaboutȱfranchisesǯȱ ForȱtheȱpurposeȱofȱtheseȱanalysesǰȱweȱwillȱfocusȱonȱtheȱrelationshipȱwithȱNorthȱ AmericanȱfranchisesǰȱgivenȱtheȱfactȱthatȱtheȱUnitedȱStatesȱisȱtheȱcountryȱthatȱ hasȱtheȱbiggestȱinĚuenceȱinȱtheȱdevelopmentȱofȱfranchisesȱinȱColombiaǯȱ WeȱwillȱpartȱfromȱanȱanalysisȱofȱtheȱęgureȱinȱColombiaǰȱitsȱmainȱcharacteristicsȱ andȱelementsǰȱpracticalȱexamplesȱandȱtheȱrisksȱthatȱcomeȱwithȱowningȱaȱfran-chiseȱinȱtheȱcountryǯ
Key words: franchiseǰȱelementsȱandȱfeaturesǰȱColombiaǰȱfranchiseȱagreementǯ
Resumen
EsteȱartículoȱesȱunaȱreĚexiónȱsobreȱelȱestudioȱdeȱlaȱfranquiciaȱenȱColombiaȱyȱ suȱdesarrolloȱaȱtravésȱdeȱlosȱañosǯȱTambiénȱanalizaȱcómoȱlosȱabogadosȱsinȱtenerȱ ningunaȱregulaciónȱexpresaȱhanȱpodidoȱmanejarȱestaȱęguraǰȱenȱparticularȱconȱ losȱEstadosȱUnidosǰȱqueȱhaȱsidoȱelȱpaísȱqueȱhaȱtenidoȱmásȱinjerenciaȱenȱlaȱevoluciónȱdeȱesteȱcontratoȱenȱlaȱeconomíaȱcolombianaǯȱ SeȱparteȱdeȱunȱanálisisȱdeȱlaȱęguraȱenȱColombiaǰȱdeȱsusȱprincipalesȱcaracterísticasȱyȱelementosǰȱejemplosȱprácticosȱdeȱfranquiciasȱenȱelȱpaísȱyȱriesgosȱqueȱpuedeȱ presentarȱlaȱęguraǯ
Palabras claves: franquicia, elementos y características, contrato de franquicia en Colombia.
Fecha de recepción: 10 de noviembre de 2014 Fecha de aceptación: 23 de febrero de 2015
328 revista de derecho, universidad del norte, 45: 328-345, 2016 ISSN: 0121-8697 (impreso) • ISSN: 2145-9355 (on line)
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FRANCHISES IN COLOMBIA, LEGAL REGULATIONS AND FEATURES
INTRODUCTION
Franchising is a marketing system in which, in exchange for a payment, an employer gives to another the privilege of using a business model that enjoys some pre market acceptance (Ruiz, 2006, p. 15).
The franchise agreement has boomed in recent times due to the fact that it helps businesses to expand and at the same time, produces a level of consumer confidence, which in turn is the main generator of success.
In both Colombia and the United States the franchise has been a model contract that has grown sharply with the passing of time. In Colombia, there is no doctrinal definition; many authors define the contract in accordance with the practices and customs.
The origin of the franchise model as we know it today was born in the United States with the Singer Corporation, a company that manufactured sewing machines. To avoid very high costs by hiring direct marketers, the Singer Corporation established sellers who were charged to have the right to distribute its products. (Park & Agudelo, 2010).
“The use of the word Franchise in the field of marketing, and specifically in commercial distribution, was born in the United States, where companies were looking for a new way to sell products to buyers” (Gonzalez, 1998, p. 3).
In this line of thought, this article seeks to describe the characteristics of the franchise agreement under the Colombian legal system, in order to understand how they have implemented many American franchises in Colombia, given the fact that our country does not have an expressed regulation for this type of contract.
The number of business that settled franchises, as well as the number of existing franchisees and total sales for these concepts are a proof of the success of this modern way of doing business which started in the United States of America and has expanded across the globe. (Gargollo, 2009, p. 4).
revista de derecho, universidad del norte, 45: 327-345, 2016
ISSN: 0121-8697 (impreso) • ISSN: 2145-9355 (on line)
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María Andrea Camacho Solana
The lack of legal regulation has not been a problem for the creation of franchises in Colombia. It’s no secret that the franchise has become a growing phenomenon in our country.
Law 1480 of 2011, which provides regulation for all consumer rights and obligations, does not provide any regulation on this issue regarding the franchise agreement, not even for when the consumers’ rights have been violated by a franchise.
Furthermore, for entrepreneurs it is an easy way to start their own business, taking advantage of the experience and structure that have been tried by others. One of the main advantages of starting a franchise is the ability to jump into the market knowing how it works, how the brand is established, how the product is sold and how it is accepted by the general public.
On the other side, “The rise of the franchise can be qualified as wild, since there is no specific regulation to this trade, thus, it is not strange that franchisor and franchisee enter into abusive contracts that benefit the franchisor” (Gonzalez, 1998, p. 11).
The lack of legal regulation often leads the brand owners to make demands that can be very hard to accomplish on the side of the franchisee. It is a figure that may give a lot of power to the franchisor and puts the franchisee in disadvantage in terms of their negotiation power. Such an uneven contract can have devastating consequences on the success of the business and it can determine if the franchise contract succeeds or fails.
THE FRANCHISE AGREEMENT
The contract is based on the voluntary agreement of the parties; the franchise is an agreement between the franchisor and the franchisee, in which one is granting the other permission to use the name and likeness of an established business, transmit expertise or provide technical assistance.
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FRANCHISES IN COLOMBIA, LEGAL REGULATIONS AND FEATURES
The general rule, is that an investor makes an initial investment, which grants him/her the rights to trade under the business name, benefit from the name and likeness of the brand, and get access to the training and support required to run the business on a daily basis.
According to Marcela Castro,
The franchisor must ensure the franchisee the existence and title over such rights, be the owner of them or have permission from the owner to grant licenses to third parties. At the same time, the franchisor must guarantee the peaceful use of the licensed logos and do everything in its power to oversee that third parties do not use them in detriment of the franchisee. (Ruiz, 2006, p. 10).
Franchises minimize the risk for investors because there are specific results and procedures from which they can benefit. These procedures decrease operating costs, as well as provide a good return on investment and easy advertisement and promotion of the product. Some of the other benefits are the membership to a group or network of franchises, which makes it easier to sell and distribute the product or service, the access to a pool of free innovation and first-hand information about an established business.
On the other hand, franchises even help in the field of costs and organization; they are also ways to limit the potential of other items and ideas of the producer, which could at the same time, seek a balance in the economy and create opportunities to others who do not have the money to invest in a franchise.
This article will deal with the franchise in Colombia and it will try to answer possible concerns that an entrepreneur might have when buying a franchise in Colombia. It will also analyze the procedures, regulations and cases of successful and unsuccessful franchises in the country.
FRANCHISE IN COLOMBIA
revista de derecho, universidad del norte, 45: 327-345, 2016
ISSN: 0121-8697 (impreso) • ISSN: 2145-9355 (on line)
Page 332
María Andrea Camacho Solana
The Latin American economy, despite having so many inequalities, has grown substantially in the last decade, which has led to the market demanding products and services that exist in developed countries.
With this expansion, franchises arrived in the region. In Colombia, franchises have spread widely these years. According to the director of the board of Colfranquicias, Luis Felipe Jaramillo Lema, Colombia went from 110 networks in late 2003 to about 530 in December 2013, with about 8,000 establishments under this figure, which generate between 35,000 and 40,000 jobs. Each year 40 new franchises open in the country.
Franchising is a multinational phenomenon; many companies have opted for it in their own countries and have slowly ventured into foreign markets driven by economic globalization phenomena. (Ruiz, 2006, p.
25)
According to Scott Murphy, senior president of Dunkin ‘Brands, Dunkin’ Donuts, “We are a global company that sells 8 billion dollars, with 2 billion cups of coffee daily, making us the number one selling coffee cups daily. Colombia has been the...
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