Unveiling Colombia's franchise legal landscape

The franchise industry in Colombia has a long history, with franchise agreements being widely used by both international and local brands that have gradually cornered the market. However, despite their prevalence, franchise contracts have not been explicitly regulated by Colombian law. Instead, the terms of the contract itself, govern the rights and obligations of the parties involved.

Local entrepreneurs have embraced franchising as a collaborative model that allows them to expand their businesses without taking on the full investment required to enter local markets. For franchisors, this approach provides an opportunity to grow their brand and share their successful business model with others. However, like any business arrangement, franchising is not without risks. Both franchisors and franchisees may face challenges in meeting expectations and achieving success.

The absence of specific legal regulation for franchise agreements has led to debates about the constitutionality of proposed regulations. Article 11 of the Entrepreneurship Law, Law 2069 of 2020, aims to foster entrepreneurship and business growth, and grants the Colombian government the authority to issue a regulatory decree defining the technical conditions, obligations, and liability regime for franchisors and franchisees. The Colombian government therefore intends to regulate a category of a commercial contract that does not have its own regulations in the countries legal system.

One key point of contention is whether such regulation should be enacted through a regulatory decree or a legislative bill. Article 333 of the Constitution states that economic activity and private initiative is free, while Article 151 reserves the authority to issue laws related to economic intervention exclusively to the Colombian Congress, and even more so when the franchise contract involves intellectual property elements such as trademarks and licenses, further complicating the regulatory landscape.

As of now, there is no definitive ruling from the Constitutional Court regarding the constitutionality of Entrepreneurship Law. However, the Ministry of Commerce, Industry, and Tourism has recently published a draft regulatory decree. This proposed regulation seeks to achieve several objectives:

1. Defining the Franchise Agreement: Clearly outlining the essential components of franchise contracts.
2. Establishing Requirements: Setting specific requirements and limitations for franchises, including pre-contractual obligations.

While the proposed regulation aims to provide clarity and protect both franchisors and franchisees, it remains a topic of legal debate. Franchises that have operated based on contractual autonomy and commercial custom may face new restrictions under this framework.

For instance, the Franchise Offer Circular, a pre- contractual document, will be among the required materials for franchise agreements. This requires that, at least twenty business days in advance of the date of signing the franchise contract or the date of initial payment, the franchisor must deliver in writing a set of information that must be clear and truthful.

It is important that the Government considers that this regulation may also be an obstacle to foreign investment compared to those contracts relating to trademark licensing, distribution, and commercial agencies. The additional requirements may affect the legal traffic of goods and services vital for the economic reactivation of the country and may result in excessive burdens on individuals looking to take on a franchise.

For now, the decree is subject to comments, and we will see if the government correctly weighs the different interests at stake: (a) the protection of franchisees, (b) legal certainty, (c) respect for private autonomy in business between individuals, and (d) the encouragement of foreign investment and economic reactivation.

Please note that we will post updates regarding further legal decisions related to franchise regulation in Colombia in due course.

Further reading:

The FTC’s Noncompete Ban: When it becomes effective and what it means

Franchise Events:

Representatives from The Executive Office and Alliott Global Alliance’s (AGA’s) member firms will host a panel session and exhibit at the International Franchise Expo (IFE) at the Jacob Javits Convention Center, New York City from May 30 – June 1, 2024.

AGA members will be highlighting AGA's expertise in supporting franchisors, franchisees, licensors, and licensees setting up or expanding into new jurisdictions. Read more about how to get involved here.

About Peña Mancero Abogados:

Founded in 2010, Peña Mancero Abogados is Alliott Global Alliance’s law firm representative in Colombia.

The firm offers assistance with M&A, IT law, corporate, litigation and commercial legal services to a large portfolio of national and international clients primarily in the technology, manufacturing, Ecommerce, retail, not-for-profit, franchisee and renewable energy sectors.

Providing comprehensive support to customers looking to develop their businesses in Colombia and in international markets, services rendered by the firm are carried out to the highest ethical standards.