By: Nemesis Escalante
The principal object of the Franchise is the transfer by a franchisor to another entity called Franchisee, so it can commercially operate the goods, services industrial and intellectual property, and know-how within a local national or international network according to the rules and standards provided to the franchisor.
Who is involved in a Franchise?
- The franchisor: It is the individual or the company that proceeds to a franchising action, preparatory acts, search for franchisees, control, and coordination of the franchised chains (Franchise Mini Dictionary). He oversees providing the Know-How.
- Franchisee: It is the individual or the company that buys a franchise from a franchisor to whom it is joined by contract.
Elements that constitute a Franchise:
There are several elements that constitute a Franchise
1. Trademark: Trademark or distinctive sign that differentiates a product or other service from other similar products or service. The trademark may be accompanied by a logo. It is considered one of the main elements for commercial and marketing purposes. [1]
2. Logo: Symbol or graphic that represents a name, a character or any other composition of shapes and colors, which allows to recognize at first glance a company or a product, it is a visual translation of the brand image. (Franchise Mini Dictionary).
3. Image: It is the effective potential, the mental product representation, or the name of all the services offered by the franchise. The homogeneity of the services provided by the various franchisees is what gives the chain its brand image (Mini Franchise Dictionary).
4. Know How: a fundamental element for a franchise chain to fully function, it must provide knowledge of all operating manuals, exhaustive training to develop the activity through techniques used by the franchisee and permanent and constant support. This know how gathers all the Franchisor’s information about all the functioning of the company, as well as any negative aspect through instructions on what not to do according to the franchisor’s experience in the development of the franchise.
The commercial relation between Franchisor and Franchisee must be formalized by a Franchise Agreement in which both parts are obliged for their fulfillment in which they agree:
- Transfer the trademark use
- Transmit Know-How
- Provide permanent support
- Provide training
- Respect commercial, technical, and other methods established in the Operation Manuals (Know-How).
- Business plan for start-up of the operation
- Canon or Royalties that constitutes payment that is contractually obligated to the Franchisee as an obtained compensation by the franchise development.
- Among other additional clauses according to the interests and conditions of each of the parts.
Honduran regulations
This type of contract is not directly and specifically regulated, reason why it is considered an Atypical Contract, where the parts prevail under the Honduras Code of Commerce. This contract will be regulated by general rules, and analogous dispositions in accordance with our regulations.
Types of franchises:
- According to the assigned element:
- Commercial Franchise: all the necessary elements that may allow the product to be sale or transferred.[2]
- Product Franchise: the exclusive right to sell certain products of a recognized brand is transferred, as well as the know-how.
- Industrial Franchise: the franchisor transfers to the franchisee the manufacturing rights, the technology, the marketing of the products, the brand, the administrative procedures, management, and sales techniques.
- Distribution franchise: the franchisee distributes the merchandise that, in turn, the franchisor has acquired.
- Service franchise: Its objective is a service or set of services that the franchisee commercializes under a certain methodology given by the franchisor.
- Franchise according to its structure:
- Individual Franchise: it is given to a person with a specific contract.
- Multiple Franchise: a person acquires several franchises in each territory.
- Regional Franchise: it is granted to a person in a specific region, which can be very wide.
- Master Franchise: This type of agreement allows the franchisee to sub-franchise the business.
- By Location:
- Corner Franchise: It is established within an existing establishment, located in a corner of it. It is almost always related to the activity that the franchised store develops.
- Shop in Shop: it recreates the decoration and atmosphere of any establishment within a chain.
Franchising advantages
- Allows a quick expansion. Having a recognized brand enables a better access to the market.
- Strategic locations access.[3]
- Allows the franchisee to maintain control of the business, with certain limitations.
- Consumers access to products and services under high quality standards guaranteeing a reliable product.
- The extension of the brand allows for less and better advertising investment.
- Effective management at the point of sale.
- New products/services studies and creations that will be extensible to the rest of the franchises.
Disadvantages
- Mismanagement risk on the franchisee’s part harming the brand’s image.
- The success of the franchise is linked to the success of the franchisor and the other establishments of the franchise network.
- The franchisee does not have the possibility to be creative, or to apply different details that may vary or confuse the brand he/she is exploiting.
- The franchisee must keep in mind from the beginning that he/she is not the owner of the brand and is limited in making any changes to it.
- The main decisions that will affect all franchises will always come from the franchisor.
Honduran franchises examples
Overtaking El Salvador, Honduras has more than 140 franchises, which was the leading country number terms in the region in terms of f franchises in the region. In both countries, the main franchising opportunities are in the fast food and retail sectors.[4]
– The company that will operate the Franchise must be incorporated
– National Tourism Registry Inscription
In the National Registry of Tourism (RNT) all the tourist service providers that carry out their operations in Honduras must register. It is a statistical information, programming and regulatory instrument of the tourist services provided in the country. For its operations it is mandatory and must be updated annually according to Honduran Institute of Tourism Law, Decree No. 193-93, Gazette of July 14, 1993, in its 39 article.
– To have a Franchise Contract where rights, obligations and each one of the limitations and conditions between Franchisor and Franchisor are established (main document) (example. Brand, Know How, Confidentiality, Training, Continuous Support, etc.).
Among other requirements related to the operation of the company in the country through a Franchise Agreement.
Conclusion
Franchises are a contract that allows the possibility of starting a business with an already established business plan, which provides the brand, product or service that is considered already profitable, business plan and know how so that the franchisee can establish the business according to the image that already has the franchise and the procedures and techniques already established.
[1] Franchise Mini Dictionary
[2] https://camaratenerife.com/servicios/emprendimiento/creacion-empresas/asesorate/planteamientos-previos-eleccion-negocio/la-franquicia/aspectos-generales/1135-creacion-empresas-migracion/franquicias/20790-tipos-de-franquicias .
[3] http://hondurascommerce.blogspot.com/p/franquicias.html
[4] https://franchise.jeff.com/es-hn/blog/las-5-franquicias-mas-rentables-en-honduras#:~:text=Honduras%20al%20d%C3%ADa%20de%20hoy,comida%20r%C3%A1pida%20y%20venta%20minorista