Franchising has become an appealing and often successful way for mum-and-dad entrepreneurs to buy into the business world.
While taking on a proven business plan may seem to offer protection for fledgling operators, in many countries legislation has failed to provide sufficient regulation. This has certainly been the case in Thailand, which currently lacks a specific regulatory law. Business law in Thailand is currently being reviewed to improve protection for those buying into franchises.
The draft Franchising Business Act was first released back in 2006 but has been revisited by the Ministry of Commerce, which held a public hearing into the draft Thai law in 2011.
Thai law consulting firm BSA Law has had a sharp interest in the draft Franchising Business Act. The Thai law company specializes in legal issues affecting Thailand’s business community and has seen examples of people being caught out by investing in poor franchise models.
It said the draft Thai law bill required franchisors to provide clear documentation including business operating manuals, fair contracts and sufficient data to allow perspective franchisees to make informed decisions.
Failure to meet these requirements would void any agreement between franchising parties.
According to legal services in Thailand, key impacts of the bill include:
- Franchisors would be required to disclose necessary data to its franchise operators;
- Franchise business agreements would need to be in writing under Thai law;
- Franchisors would need to make clear working manuals available for franchisees to follow; and
- In franchise arrangements were franchisees are restricted to operating in defined geographical locations, franchisors must not operate the same or a similar business in this area.
Under the proposed business law, Thailand franchisors would also be better protected with franchisees restricted from disclosing sensitive business information.
Importantly, franchisors would be required to have successfully operated their business model for two consecutive years. Evidence of profits (best verified through an authorised accounting service in Thailand) need to be submitted in order to file for a franchise business registration. At least two branches of a business need to have been profitable over two years to qualify.
Thailand law scope
The scope of the draft bill is outlined in Section 3, which states that the Thailand law is not applicable to franchise businesses with a foreign franchisor. In the event that a master franchising agreement has been entered into the draft Thai law does not apply to the master franchising agreement but will take effect on any sub-franchising agreements.
Business legal services in Thailand advise those considering a franchise opportunity to carefully examine the track record of the franchisor.
This includes their trading history. Be warned: Some franchisors present inflated sales figures when trying to attract new franchisees. Make prepared to carefully scrutinise company figures and don’t be afraid to ask for hard data as opposed to projections.
Seek independent business advice. Thailand has an estimated 10,000 franchising businesses, ranging from food chains, to tutoring firms, daycare centres and convenience stores. Having an expert accounting service (Thailand law companies often offer this in-house) go over financial figures will protect you from shoddy operators.
Franchising offers a proven business model and a proposed Thailand law enshrining the rights of franchisees will help protect would-be business owners!
BSA Law has focused on providing reliable thai Law consulting and services to the business community in Thailand for nearly 30 years.Find out more about Law firm in Thailand at http://www.bsalaw.co.th.