Franchising is one of the fastest ways to grow a proven business in South Africa. For the franchisor, it offers expansion funded largely by franchisees. For the franchisee, it offers an established brand, a tested system and ongoing support. But franchising is regulated, and getting the legal framework wrong can expose both sides to disputes, cancelled agreements and claims.
This guide explains the legal requirements for franchising in South Africa and what franchisors and franchisees should check before signing.
When is a business arrangement a franchise?
The Consumer Protection Act 68 of 2008 (CPA) defines a franchise agreement broadly. In summary, an arrangement is a franchise where:
- the franchisor grants the franchisee the right to conduct a business under a specified business system, using the franchisor’s brand or trade marks;
- the franchisor exercises, or is entitled to exercise, significant control over the franchisee’s business and provides it with assistance; and
- the franchisee pays the franchisor directly or indirectly, for example through an initial fee, royalties or mark-ups on goods.
Licensing, distribution, agency and “business opportunity” arrangements can fall within this definition even if they are not called franchises. Whether the CPA applies depends on the substance of the arrangement, not its label.
Importantly, the CPA’s protections for franchisees apply regardless of the size or turnover of the franchisee. The usual annual turnover threshold that excludes larger juristic persons from the CPA does not apply to franchise agreements.
The legal requirements
A written, signed agreement
Section 7 of the CPA requires a franchise agreement to be in writing and signed by or on behalf of the franchisee. It must also be in plain and understandable language and contain the information prescribed by the CPA Regulations.
Prescribed contents (Regulation 2)
The Regulations set out a detailed list of matters the agreement must deal with. These include:
- the parties, the franchised business and the business system;
- the duration of the agreement and the rights of renewal;
- the territory, and whether it is exclusive;
- all fees payable, including the initial fee, royalties, marketing contributions and any other charges, and how they are calculated;
- the franchisor’s obligations to train and support the franchisee;
- the use of the franchisor’s trade marks and other intellectual property;
- any obligation to buy goods or services from the franchisor or nominated suppliers;
- transfer, sale or cession of the franchise; and
- termination, and what happens on termination, including any restraint of trade.
The disclosure document: at least 14 days before signing
The franchisor must give a prospective franchisee a disclosure document at least 14 days before the franchise agreement is signed. It must be dated and signed by an authorised officer of the franchisor and contain prescribed information, including:
- a certificate from the franchisor’s auditor or accounting officer regarding the franchisor’s financial position, including its solvency;
- an organogram of the support system available to franchisees;
- a list of current franchisees and franchisor-owned outlets, with their contact details; and
- a statement that the prospective franchisee may contact those franchisees and visit their outlets.
Prospective franchisees should use this period properly. Speak to existing franchisees, interrogate the projected figures and have the agreement reviewed before the 14 days are up.
Marketing and advertising funds
Where franchisees contribute to a marketing or advertising fund, the Regulations require the fund to be kept in a separate bank account, with audited annual financial statements made available to franchisees. Fund money may only be used for the purposes for which it was collected.
The 10-day cooling-off period
A franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signing it, by giving written notice to the franchisor. Franchisors should plan their onboarding with this in mind, for example before releasing confidential operations manuals or committing to fit-out costs.
Protect the brand before you franchise
A franchise is, at its core, a licence to use the franchisor’s brand and system. A franchisor that has not registered its trade marks may be licensing something it cannot properly protect, and may find a franchisee or competitor using the brand after the relationship ends.
Before franchising, the franchisor should:
- register its trade marks in all the relevant classes;
- confirm that it owns the copyright in its operations manual, recipes, software, store designs and marketing material, with written assignments from any contractors who created them;
- protect its confidential know-how through confidentiality obligations in the agreement and the manual; and
- decide who owns customer data generated by franchisees, and allocate responsibility for compliance with POPIA.
See our article on protecting intellectual property in South Africa.
Competition law: pricing and supply
The Competition Act 89 of 1998 applies to franchise networks. In particular:
- Minimum resale price maintenance is prohibited. A franchisor may recommend retail prices, provided it is clear that the recommendation is not binding, but it may not require franchisees to sell at or above a minimum price.
- Exclusive supply obligations and territorial restrictions are common and often justified to protect quality and consistency, but they should be reasonable and capable of justification.
- Coordination between competing franchisees on prices or markets can amount to prohibited conduct.
Restraints of trade on exit
Most franchise agreements prevent a former franchisee from operating a competing business for a period after the agreement ends. South African courts will generally enforce a restraint that protects a legitimate interest, such as the franchisor’s know-how, goodwill and network, but not one that is unreasonable in scope, duration or area. Restraints should be drafted carefully and tailored to the business. See our article on restraints of trade.
Foreign franchisors and international expansion
Foreign franchisors entering South Africa, and South African franchisors expanding abroad, should consider:
- exchange control: royalties and fees paid to non-residents, and agreements licensing IP across the border, may require approval from the Financial Surveillance Department of the South African Reserve Bank or an authorised dealer;
- withholding tax on royalties paid to non-residents, subject to any applicable double tax agreement;
- B-BBEE, which can affect a franchise network’s ability to supply government and larger corporate customers; and
- whether to use master franchise, area development or direct franchising models.
Checklist for prospective franchisees
- Did you receive the disclosure document at least 14 days before signing?
- Have you spoken to several existing and former franchisees?
- Do you understand every fee, and how royalties and marketing contributions are calculated?
- Is your territory exclusive, and can the franchisor open competing outlets or sell online into it?
- Must you buy stock or equipment from the franchisor or nominated suppliers, and at what prices?
- Can you sell the franchise, and on what conditions?
- What are the grounds for termination, and what happens to your investment if the agreement ends?
- How broad is the restraint of trade?
Checklist for franchisors
- Is your business system proven, documented and capable of being replicated?
- Are your trade marks registered and your IP properly owned?
- Do your franchise agreement and disclosure document comply with the CPA and its Regulations?
- Is your marketing fund ring-fenced and audited?
- Are your pricing and supply arrangements compliant with competition law?
- Do you have a process to manage the 10-day cooling-off period and franchisee onboarding?
The Franchise Association of South Africa (FASA) also has a code of ethics and business practice for its members, which many franchisors follow as a mark of good practice.
How O’Reilly Law can help
We act for franchisors and franchisees. For franchisors, we structure franchise systems, draft CPA-compliant franchise agreements, disclosure documents and operations manual protections, and register and protect trade marks. For franchisees, we review franchise agreements and disclosure documents before signing and advise on renewals, sales of franchises and disputes, including termination and restraint of trade.
Franchising your business, or about to buy a franchise? Contact us before you sign.
Related reading: Protecting your intellectual property · Selling a business as a going concern
This article is general information and not legal advice. Correct as at October 2026.