Question & AnswerQ&A (EXECUTIVE ORDER NO. 169)
The primary purpose of Executive Order No. 169 is to strengthen the franchising industry to protect Micro, Small and Medium Enterprises (MSMEs) by developing a transparent and business-friendly environment and promoting fair and equitable franchising practices.
A 'Franchise' is a contract or agreement between a franchisor and a franchisee where the franchisor grants the franchisee the right to operate a business using the franchise system, use marks or intellectual property, controls business operations, and the franchisee pays a fee or consideration.
A Franchise Agreement is a written contract where the franchisor grants the franchisee the right to offer, sell, or distribute goods or services using a marketing system or technology transfer in exchange for consideration, including rights to trademarks, business names, logos, and know-how.
A 'Franchisee' and 'Franchisor' can be sole proprietorships, partnerships, cooperatives, or corporations registered with the Department of Trade and Industry, Securities and Exchange Commission, or Cooperative Development Authority.
Micro enterprises have less than P50,000.00; Cottage enterprises have P50,001.00 to P500,000.00; Small enterprises have P500,001.00 to P5,000,000.00; Medium enterprises have P5,000,001.00 to P20,000,000.00 in total assets excluding land.
Franchise agreements must include: product/service descriptions; rights granted; disclosure of fees; franchisor and franchisee responsibilities; non-discrimination provisions; duration and renewal terms; termination grounds; cooling-off period; dispute resolution mechanism including mediation; and remedies for violations.
Franchisors incorporating the minimum terms and conditions may be entitled to incentives or benefits provided by the national government, with the DTI tasked to formulate related measures subject to existing laws and policies.
Franchisors must register their franchise agreements with the DTI. Those belonging to registered franchise associations must register their Standard Franchise Agreement and commit that future agreements comply with minimum terms. Non-members must register all franchise agreements with MSME franchisees within 30 days of execution.
The DTI is responsible for formulating policies, creating the MSME Registry of Franchise Agreements, issuing implementing guidelines within 90 days, registering franchise agreements, and formulating measures for franchisor incentives.
Franchise agreements must include mechanisms for dispute resolution and stipulate that parties may seek voluntary mediation under RA No. 9285, the Alternative Dispute Resolution Act of 2004.
The 'cooling off' period gives the MSME franchisee the option to terminate the franchise agreement within a prescribed timeframe to protect their rights and ensure informed consent.
Franchisors with existing franchise agreements with MSMEs must comply with the minimum terms and registration requirements upon renewal of their franchise agreements as prescribed by the EO.
Franchisors are encouraged to join duly registered franchise associations, and MSMEs intending to franchise are encouraged to transact with franchisors who are members of such associations.
If any part of the EO is declared unconstitutional or invalid, the remaining provisions shall continue in full force and effect.