Operating a franchise in South Africa

According to the Franchising Association of South Africa’s (FASA) 2023-24 franchise survey, franchising in the country accounts for 727 franchise systems and 68,463 franchisees employing around 500,000 people.

Franchises are found across 21 different business sectors in South Africa, including agricultural, mining, manufacturing and industrial services; building, office and home services; fast food and restaurants; health, beauty and body culture; and the retail and direct marketing services sector.

Legal considerations

While there is no specific franchising law, franchising arrangements in South Africa are primarily governed by the Consumer Protection Act No. 68 of 2008 (CPA) and its regulations. The CPA ensures transparency and fairness in franchise agreements, treating franchisees as consumers.

Competition laws, particularly the Competition Act No. 89 of 1998, also play a role in regulating anti-competitive practices within all business, including franchising.

FASA promotes ethical franchising through its Code of Ethics and Business Practices. While membership is voluntary, FASA provides guidelines and dispute resolution mechanisms that are widely respected in the industry.

Structure and set up

A franchisor can operate as any legal entity, but would typically operate as a public or private profit company incorporated in terms of the provisions of the Companies Act. There is no general requirement for the franchisor to be a local entity or an entity wholly owned by South African nationals.

Franchisees can also operate as any legal entity but would typically operate as a public or private profit company incorporated in terms of the provisions of the Companies Act. A general obligation to be locally owned or wholly owned by South African nationals applies.

Foreign investor franchisors can enter the South African market by either registering an external company, also known as a branch office, or incorporating a South African private profit company. The company could be established as a wholly-owned subsidiary of the foreign parent entity.

Foreign franchisors may opt for a joint venture arrangement with a local South African entity as a means to more effectively establish a presence in South Africa.

Alternatively, a foreign franchisor may choose to grant rights to a local party - a master franchisee - who can adopt the role of franchisor in South Africa and extend franchise opportunities to sub-franchisees.

If a branch office is established in South Africa, the parent company will be fully liable if the branch office's debts are not paid. This means that creditors and other claimants arising out of business activities in South Africa will be able to claim from the parent company directly for the debts of the branch office, resulting in the parent company's balance sheet being exposed to business risks in South Africa. A subsidiary company will be a separate legal entity and will not face the same challenges.

South Africa is also subject to capital controls and local empowerment legislation to address historic imbalances in the economy which may impact the type of entity adopted and may impact the shareholding of the franchisor or franchisee.

Non-compete clauses are enforceable during the franchise term and may extend post-term, provided they are reasonable in scope and duration and not contrary to public policy. These clauses must align with the CPA, and common law principles and legal precedent.

The CPA prohibits unfair or unreasonable terms in franchise agreements. The Competition Act also prohibits the practice of imposing minimum resale prices, though recommended minimum resale prices may be permitted if it is clear they are not binding and the words “recommended price” appear next to the stated price as indicated on the relevant products.

Franchise agreements must specify their term length and renewal conditions. The CPA ensures that terms are fair and reasonable, but there are no specific statutory limits on duration. In practice, franchise agreements typically endure for five years, with an option to extend for a further five year period.

Franchise agreements do not need to be registered with local authorities. However, compliance with the CPA and other relevant laws is mandatory. Franchise agreements must comply with the CPA, must be in writing and easily understandable, and include all necessary disclosures. Branding and operational manuals are often required to ensure consistency. 

Franchisors must provide a franchise disclosure document (FDD) at least 14 days before signing the agreement, which complies with multiple requirements in the CPA regulations. These disclosure obligations must be made to potential or renewing franchisees, but there is no obligation to repeat the disclosures to existing franchisees. The FDD does not need to be registered with any government authority.

Intellectual property

Registered trademarks are protected under the Trademarks Act No. 194 of 1993. Registration is handled by the Companies and Intellectual Property Commission (CIPC), and enforcement can be pursued through legal action. Applicants seeking trade mark registration must submit separate applications for each trade mark class of goods or services within which they would like their mark to be protected. Once registered, a trade mark holder is issued with a trade mark registration certificate. Trade marks are valid for a period of 10 years, during which the trade mark holder has exclusive rights to use the relevant mark, subject to any conditions that may be imposed by the CIPC.

Unregistered trade marks are only defendable in accordance with common law. Franchises also benefit from protections for trade secrets, business ideas, methods, know-how and confidential information under common law. 

Statutory protection is provided for copyright, design rights and patents to the extent that the franchise requires protection of any of these rights.