Our Commercial Services
|Commercial Law: Banking Law; Setting up Businesses; Franchises; Commercial Transactions and Structuring; Financing; Competition Law; Corporate Law; Suretyship Agreements; Acknowledgement of debt; Commercial Lease Agreements; Registration of Companies, Close Corporations and Trusts; Shareholders and Association Agreements; Partnership Agreements; Commercial Agreements; Offers of Compromise; Debt Collection and Rental Collections.|
|New Businesses | Franchises | Liquor Licenses|
|Things to look into when starting or continuing a new business|
Cash flow is extremely important. A business that does not have enough funds available to pay its current debts, is often referred to as commercially insolvent. There are many ways to play in the business world in order to prevent cash burn out. This page contains some thoughts on cash flow of the business.
The best prize is when sufficient cash flow opportunities are taken up to supply a steady cash flow. Investing in assets that render a constant return, is important. Many choose as a healthy side line to their main business, to invest in immovable property.
Asset protection can be achieved by creating different entities such as companies, trusts and close corporations. This can have tax benefits in that income is split. The greatest protection however lies in the splitting of the risk. When one entity runs into a problem, the others can usually continue functioning normally. Only the troubled entity runs the risk of negative credit listing ‹“back listing”.›
Further , different entities tend to open banking
facility opportunities that provide cash flow leverage. Suppose you need
R60 000 for a venture and you have no free security to offer. What would
be easier for the banking world to deal with? Applying to one bank for
the full amount or applying to 5 banks or institutions for a facility of
R12 000 each. Smaller loans are granted easier and quicker. If you have
two companies, a cc and a trust, each can apply for the small loan or
facility of R10 000 and use the financing to sub-finance the entity
needing the cash flow injection. This only enhances the business
capabilities if your venture yields cash flow dividends or income in
excess of the instalments. It is extremely useful to build up contacts
and track records with diverse banks.
Try not to incur debt on fancy equipment to “keep up with the Jones’s”. Focus on spending on things that bring in cash flow.
There might be times when cash is needed in
order to secure a business opportunity. Many businesses use large
overdrafts for this purpose. Other possibilities are credit cards and
mortgage bonds. These offer useful sources of income but are costly when
used without discipline. The disciplined player can easily secure large
amounts of finance with credit card leverage. Lets take the R60 000 need
again. Institutions are literally throwing out credit card offers with
straight and budget facilities. If I take up ten credit cards, each with
facility of a least R6 000, I have access to sufficient resources to
fund the business opportunity. This method could provide access to a
much higher amount ‹hundreds of thousands of rand› if large budget
facilities are in place. Just use the method with caution and careful
planning and don't live in denial of the absolute need to put the
finances into cash flow providing opportunities.
|We assist in the negotiation of or setting up franchises, drafting of franchise agreements and enforcing the rights of the parties. We can also assist parties who are unhappy with the franchise agreement results.|
|What legislation applies to franchises?|
It’s still a number of different angles that apply. In the recently ‹2007› released book, Franchising in South Africa, Eric Parker and Kurt Illetschko point out that despite lobbying by the Franchise Association of SA ‹FASA›, new franchise laws have not been passed. This position has now changed.
Laws that applied were amongst others that of Contracts, the Competition Act and Intellectual Property laws such as the Trademarks Act. FASA has a Code of Ethics and Business Practices. Other aspects are commercial laws such as the Companies and Close Corporations Acts, Labour and tax laws. The Competition Board has also released a lengthy Franchising Notice.
The Consumer Protection Act was passed in April 2009. It will significantly impact on the Franchise industry.
|The Consumer Protection Act 68, 2008 ‹CPA› Section 1 | 5 | 7 | 22|
A franchise agreement is defined in section 1 of the CPA. It is an agreement between two parties who are referred to as a franchisor and franchisee. ‹The franchisor is the person that gives the rights and the franchisee is the recipient› The Franchisee pays a consideration to the Franchisor in return for which the Franchisor grants the Franchisee the right to carry on business within South Africa under a system or marketing plan determined or controlled by the Franchisor or his associate.
It is clear from the definition that the right to conduct business may be in respect of the whole of South Africa or only a part. From this it would seem that where a Franchisor grants rights for business to be conducted only outside South Africa, the agreement is not a Franchise Agreement subject to the terms of the CPA. Where the Franchisor grants rights via the agreement for a Franchisee to conduct business both inside and outside South Africa, does the CPA apply or not? More particularly, does it apply to the part of the Franchise relationship concerning the activities outside South Africa? The answer is probably that it does in as much as it does fall within the section 1 definition of a Franchise Agreement. The fact that part of that agreement relates to foreign activities does not detract from the fact that it is still a Frachise Agreement for purposes of the CPA.
It must also be an agreement under which the operation of the business of the Franchisee will be substantially or materially associated with advertising schemes or programmes or a trade mark or trade marks, commercial symbols or logos or any similar marketing, branding, labelling or devices, or a combination of such things that are owned, used or licensed by the franchisor.
Lastly the section requires that for such an agreement to qualify as a franchise agreement under the act, it must govern the business relationship between the parties. This includes the relationship between them with respect to the goods or services to be supplied to the franchisee by the franchisor, his associate or at his direction.
|The supply of goods or services to a franchisee in terms of a franchise agreement, is regarded by the CPA as a transaction between a supplier and consumer. ‹s5‹6›› As the franchisee is the recipient, the franchisee is the party who will be the consumer. The CPA was created to protect consumers. Thus the CPA is intended also to assist the franchisee as consumer. This is a welcome change to the industry as franchise agreements have traditionally been of the most one sided commercial agreements ‹drafted in favour of franchisors.›|
Section 7 sets out certain requirements for franchise agreements.
Previously parties were able to conclude oral franchise agreements. Subsection 7(1)(a) now requires such agreements to be in writing. Thus franchise agreements join the likes of sale of land and suretyship agreements which are also required to be written in terms of other legislation.
It is interesting that the subsection only requires the agreement to be signed by or on behalf of the franchisee. The reason for this is probably that the legislature intends to protect the franchisee as a consumer and only wishes to bind a franchisee if he has signed the agreement. The franchisor is usually presents prospective franchisees with the unsigned standard agreement acceptable to the franchisor and it would seem that the act regards this as sufficient offer by the franchisor to bind the latter without him signing the agreement.
The agreement must set out any prescribed information, or address any prescribed categories of information and must comply with the plain and understandable language requirements set out in section 22 of the CPA. The Minister (who is defined in section 1 as the member of the cabinet responsible for consumer protection matters) may prescribe information to be included in franchise agreements.
Section 7(2) creates a Cooling-Off period of 10 days within which the franchisee may cancel the agreement without cost or penalty. The 10 days refer to business days and any notice to cancel the agreement must be given in writing to the franchisor.
This section is part of the consumerism's drive to rid contracts of legal jargon and legalese. The form prescribed by the act must be followed or, if no form is provided, plain language must be used.
In the context of a franchise agreement, plain language is defined as that of which it is reasonable to conclude that an ordinary franchisee consumer (with average literacy skills, and minimal experience as a franchisee consumer of franchise goods and services) for which the language is intended to hear, could understand the context without undue effort. In deciding whether or not it is plain enough, regard is had to context, comprehensiveness, consistency, organization, form, style, document & visual representation, vocabulary, usage and sentence structure, illustrations, examples, headings or other aids to reading or understanding.
The section authorizes the National Consumer Commission to publish guidelines for methods of assessing whether plain language has been used.
Modern business trend
Franchising has become a commercial art form. It is prevalent in South Africa. In January 2007, the South African issue of the world's best-selling entrepreneurship magazine, ENTREPRENEUR:Lets do business, included a supplement under the title "Be Your Own Boss" which contained 85 of the current Franchises available to investors in South African businesses. For more details on the magazine, click here.
Whether you are looking to franchise your business or investing as a franchisee, you need to pay careful attention to the content of the contract. The standard contracts are available from most franchisors. Make sure you go the extra mile to have the content properly interpreted before you sign.
If you believe you have a good business concept and are ready to take your system to the next level, we can assist in setting up the standard agreements, the operations manual and other tools.
Perhaps the agreement you require is more in the nature of distribution of products than business franchising. We have experience in both fields and will gladly assist you to generate the agreement best suited to your operation.