Franchise Agreement in the Philippines: What the Contract Must Cover

A franchise agreement in the Philippines is the contract that lets one business (the franchisee) use another's brand, business system, and know-how in exchange for fees, while operating under the franchisor's rules and standards. Philippine law does not have a single, standalone franchise statute. Instead, a franchise agreement is governed by general contract law, the Intellectual Property Code (Republic Act No. 8293) for the brand and technology licence, and the Revised Corporation Code (Republic Act No. 11232) where a corporation is a party. The contract itself does the heavy lifting, so its terms must be complete, clear, and enforceable.

What a franchise agreement actually is

A franchise arrangement combines two legal ideas. First, it is a licence: the franchisor allows the franchisee to use its trademarks, service marks, and business system. Second, it is a commercial contract: the parties agree on fees, territory, term, and operating standards.

Under the Intellectual Property Code, "intellectual property rights" expressly include trademarks and service marks, and the law also covers protection of undisclosed information — the trade secrets and proprietary methods that often make a franchise valuable. The same Code defines technology transfer arrangements as contracts involving the transfer of systematic knowledge for manufacturing a product, applying a process, or rendering a service, including management contracts and the licensing of all forms of intellectual property rights.

A franchise agreement typically falls within this broad description, which matters because the law treats these arrangements as legitimate, registrable commercial transactions.

The core terms every franchise contract should cover

Because no single statute lists mandatory franchise clauses, the agreement must define the deal itself. The following are the terms that determine whether the relationship works or ends in dispute.

• Grant of rights. Exactly which trademarks, trade names, and systems the franchisee may use, and whether the grant is exclusive or non-exclusive within a defined territory.
• Term and renewal. How long the franchise runs, the conditions for renewal, and the grounds for non-renewal.
• Fees. Initial franchise fees, continuing royalties, advertising or marketing contributions, and how each is computed and paid.
• Territory. The geographic area of protection and any restrictions on selling outside it.
• Operating standards. The manuals, quality controls, training, and inspections the franchisor may require.
• Supplies and sourcing. Whether the franchisee must buy from the franchisor or approved suppliers.
• Intellectual property use and protection. How the marks may be used, and the franchisee's duty to help police infringement.
• Confidentiality. Protection of trade secrets and undisclosed information, both during and after the term.
• Transfer and termination. Whether the franchise can be sold or assigned, and what triggers termination and post-termination obligations.

How intellectual property law shapes the deal

The franchisor's brand is the heart of the franchise, so the agreement must sit on solid intellectual property ground.

The Intellectual Property Code protects trademarks and service marks and undisclosed information, and it covers licensing of all forms of intellectual property rights. A franchise agreement should therefore state clearly that the franchisee receives only a licence — not ownership — of the marks, and that all goodwill built up through the franchise belongs to the franchisor.

The Code also addresses technology transfer arrangements, which include contracts for the transfer of systematic knowledge and management contracts. The Intellectual Property Office of the Philippines (IPO) is mandated to register technology transfer arrangements and settle disputes involving technology transfer payments. Where an agreement involves technology transfer or licensing, the parties should consider whether registration with the IPO is required and structure the payment terms accordingly.

Corporate and registration considerations

If the franchisee or franchisor is a corporation, the Revised Corporation Code governs how that entity is organized and how it acts.

A corporation is an artificial being created by operation of law, with the right of succession and only those powers expressly authorized by law or incidental to its existence. A corporation's specific purpose or purposes must be stated in its articles of incorporation, and where there is more than one purpose, the primary purpose and secondary purpose or purposes must be indicated.

This matters for franchising: a corporation entering a franchise agreement should confirm that the business it intends to operate falls within its stated purposes. Corporate existence begins on the date the Securities and Exchange Commission (SEC) issues the certificate of incorporation, and the board of directors or trustees exercises the corporate powers, conducts all business, and controls all properties of the corporation. Authority to sign a franchise agreement should therefore trace back to a board resolution.

Frequently asked questions

Is a franchise agreement required to be registered in the Philippines? There is no single franchise-registration law. However, where the agreement involves a technology transfer arrangement or licensing of intellectual property, the IPO is mandated to register technology transfer arrangements, so registration may be required depending on the terms.

What law governs a franchise agreement in the Philippines? General contract law applies, together with the Intellectual Property Code (Republic Act No. 8293) for the brand and technology licence, and the Revised Corporation Code (Republic Act No. 11232) where a corporation is a party.

Does a franchise agreement transfer ownership of the trademark? No. A franchise grants a licence to use the marks. Ownership and the goodwill attached to the brand remain with the franchisor unless the contract expressly says otherwise.

Practical takeaways

• A franchise agreement in the Philippines is governed by contract law, the Intellectual Property Code, and — for corporate parties — the Revised Corporation Code.
• The Intellectual Property Code protects trademarks, service marks, and undisclosed information, and covers licensing of intellectual property rights.
• Technology transfer arrangements, including management contracts and licences, are registrable with the IPO, which also settles disputes over technology transfer payments.
• A corporation must act within its stated purposes and through board authority, so confirm both before signing.
• Because no single statute lists mandatory franchise clauses, the contract's completeness is what protects both parties.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

• REPUBLIC ACT NO. 8293 - AN ACT PRESCRIBING THE INTELLECTUAL PROPERTY CODE AND ESTABLISHING THE INTELLECTUAL PROPERTY OFFICE, PROVIDING FOR ITS POWERS AND FUNCTIONS, AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.