Legal and business highlights

1) Introduction to the regulation of franchising in Argentina

Franchising in Argentina is governed by the Civil and Commercial Code of the Nation (Código Civil y Comercial de la Nación or CCCN), covering franchise agreements in Sections 1,512 through 1,524.

As a general principle, the CCCN in its Section 962 sets forth that legal norms about contracts only apply in the absence of parties´ stipulations unless their imperative nature results from their way of expression, content, or context. Should disagreement about the nature of a provision arise out of a contract, a judge will be who ultimately constructs the norm and settle the dispute.

As for contractual law, the CCCN also regulates the so-called adhesion contracts (or contracts entered into by adhering to predisposed general clauses also known as standard-form contracts (CCCN, Sections 984 through 989). Franchise agreements may be considered one of these adhesion contracts since for the most part the franchisee may not negotiate nor draft any of the content but adhere to the general clauses unilaterally drafted by the franchisor. Thus, more stringent provisions will apply to the franchise agreement, as to the clear, complete, and legible wording of the clauses, the ambiguity of its content, abusive clauses, etc. In this line, clauses referring to documents or information not provided by the franchisor, distorting obligations of the franchisee, extending the rights of the franchisor, or clauses not reasonably predictable, may be deemed unwritten.

2) Definition and key features of franchise agreements in Argentina

The CCCN, in its Section 1,512, defines commercial franchise (franquicia comercial) as follows: “There is commercial franchise when a party, named franchisor, grants to the other, named franchisee, the right to use a proven system, aimed to commercialize certain goods or services under the commercial name, commercial symbol, or trademark of the franchisor, who provides a set of technical knowledge and continuous technical or commercial assistance, on a direct or indirect consideration by the franchisee”. The franchisor must be the exclusive owner of the set of intellectual rights, trademarks, patents, commercial names, copyrights, and others included in the system under franchise, or have the right to use and transmit those rights to the franchisee. The franchisor cannot have direct or indirect controlling equity interest in the business of the franchisee”.

When entering into franchise agreements, there are no mandatory execution formalities or registration requirements. However, having the contract registered before the National Institute of Industrial Property (Instituto Nacional de la Propiedad Industrial – INPI) may have significant tax benefits for the parties.

According to the legal regulation, the core feature of franchise agreements is the existence of a proven business system under the franchisor´s commercial name or trademark, being the franchisor the owner of such commercial name or trademark or having the franchisor the right to assign them to the franchisee[1].

The same Section 1,512 of the CCCN brings a particular prohibition: the franchisor cannot directly or indirectly control the franchisee´s business. However, Section 1,513, sub-section b) of the CCCN, allows the development franchisee to control sub-franchises. Said Section 1,512´s prohibition tends to establish a complete independence between the parties of the contract and seems to have been introduced to support the provision of Section 1,520, sub-section b) stating that the franchisor will not be construed liable for the labor obligations of the franchisee, except in case of fraud[2].

Following Section 1,512´s general definition, Section 1,513 outlines certain types of franchise agreements:

a) Wholesale or master franchises: these franchises are those under which a franchisor grants a territory (national, regional, or provincial) to a franchisee. The franchisee has the right to appoint sub-franchisees; and

b) Development franchises: these franchises are those under which a franchisor grants a franchisee the right to open multiple dependent or controlled businesses, either regionally or nationally, for a term no less than five years. In these cases, the assignment of the agreements and sub-franchising are prohibited, unless the franchisor consents to.

3) Legal content of franchise agreements in Argentina

The CCCN sets forth that the parties must abide by certain statutory obligations. The minimum legal content[3]  the franchise agreements must comply with is the following:

a) Franchisor´s obligations

According to Section 1,514, the franchisor must meet certain obligations:

Disclosure

Under sub-section a): previous to the agreement´s signature, to furnish the franchisee with two years of economic and financial information on the evolution of similar units, operating or having operated for a sufficient time either in Argentina or abroad.

Know-how transfer

Under sub-section b): to communicate to the franchisee the set of technical knowledge arising out of the franchisor’s experience and tested by the latter, capable of producing the effects of the franchise system;

Operation Handbook

Under sub-section c): to deliver to the franchisee a handbook of operation with concrete specifications on how to develop the activities foreseen under the agreement;

Technical assistance

Under sub-section d): to provide technical assistance for the best operation of the franchise;

Goods and services supply

Under sub-section e): if the contract contains the provision of goods or services, by the franchisor or designated third parties, to ensure that such provision is made in adequate quantities and at reasonable prices, according to local or international trade practices;

Trademark protection

Under sub-section f): to defend and protect all of the rights granted to the franchisee under the contract.

Under sub-section g): in international franchises, the defense obligations referred to in sub-section f) will be contractually in charge of the franchisee, specially empowered to that extent, without prejudice to the franchisor´s obligation to timely provide the franchisee with the documentation and other elements necessary for that purpose. In any case, the franchisee is also entitled to intervene as an interested contributor in the defense of those rights, either in administrative or judicial procedures, as established by procedural law and to the extent allowed by such law.

b) Franchisee´s obligations

Section 1,515 brings the minimum franchisee’s statutory obligations, as follows:

Compliance

Under sub-section a): to efficiently develop the activity included in the franchise, meeting the specification of the handbook of operation and those instructions conveyed by the franchisor fulfilling its technical assistance duty;

Information and control

Under sub-section b): to provide information, reasonably requested by the franchisor, to know the development of the activity and to allow inspections agreed upon or deemed appropriate;

Protection of the franchisor´s rights

Under sub-section c): to refrain from acts that might compromise the identification or prestige of the franchise system, including the rights comprised therein, and cooperate in protecting those rights;

Confidentiality

Under sub-section d): to maintain the confidentiality of the information integrating the conveyed technical knowledge and ensure such confidentiality for any individuals – employees or not – needing to know the privileged information for the development of the activities. Confidentiality obligations shall be valid after the expiration of the agreement, with no time limit.

Payment

Under sub-section e): to comply with the considerations agreed upon, including contributions to the development of the market or technologies related to the franchise if any.

Failing to meet any obligation may give grounds to terminate the contract with cause (see more on termination of franchising agreements in Argentina on our Legal Blog).

Should you want to know more about any of the above-explained issues, please, contact us.

To read more about franchising in Argentina, you are welcome to review the following posts on our Legal Blog:

Vertical restraints on competition. The case of franchising

Franchising in Argentina and Brazil: What should businesspeople know?

Franchising disclosure in Argentina

International Franchising in Argentina: new contribution of Castro Sammartino & Pierini

May the franchisee’s employees bring a claim against the franchisor? A recent ruling sets the record straight (only available in Spanish)

 c) The Argentine franchise market

Information about the Argentine franchise market can be reviewed in the following external link:

https://www.export.gov/article?series=a0pt0000000PAtAAAW&type=Country_Commercial__kav

d) Our legal services

Our law firm may assist those companies interested in franchising in Argentina with the negotiation and drafting of international franchise agreements, supporting documents, and intellectual property and business-related issues.

[1] Section 1,513, sub-section c) of the CCCN, states that a business system is a set of practical knowledge and experience accumulated by the franchisor, non-patented, duly tested, secret, substantial, and transmissible. The system is secret when it is not generally known or easily accessible – either as a whole or in the configuration of its components -. The system is substantial when the information contained therein is relevant for the selling of goods or the rendering of services. The system is transmissible when its description is sufficient to allow the franchisee to develop its business in agreement with the guidelines created or developed by the franchisor.

[2] This limitation of labor liability purports to exclude those cases of joint liability provided for in the Contract of Employment Law (Law Nº 20,744, Section 30).

[3]Parties in their agreements may widen the scope with additional obligations.