The Legal Framework for Franchising in Nigeria
A franchise is a business arrangement where the franchisor, who is usually an established business or brand owner, grants the franchisee the right to operate a business using the franchisor’s brand name, trademark, business model, and support systems within a specific geographic area or territory.
Examples of ongoing franchises in Nigeria are Shoprite, Dominos, Exxon Mobile, KFC, and Coldstone, to mention a few. To learn about the legal framework guiding franchising in Nigeria, this article will help you:
- Understand the legal framework for franchises in Nigeria
- Understand the process for starting a franchise and
- Understand the pitfalls of franchising in Nigeria
Key Terms
- Franchisor – The party permitting the use of his brand details in exchange for a benefit is called the franchisor.
- Franchisee – The party who uses the brand details and pays benefits is called the franchisee.
Present Position of Franchising in Nigeria
Nigeria has no explicit law that guides franchising. However, despite not having a specific legal framework, franchises still exist and thrive in Nigeria – and they are largely governed by contracts called franchising agreements.
Since franchises are essentially businesses with different ownership and branding structures, they are still subject to the general laws that govern the operations of businesses in Nigeria. Some of these laws include the FCCPA, the NIPC Act, the NOTAP Act, the Trademark Act, and the CAM Act.
Franchise Structure
In November 2016, the Federal Ministry of Industry, Trade and Investment in partnership with UKaid conducted a study with a view to tackling access to finance and increasing the potential of franchising in Nigeria. Based on the report, some key issues were identified as challenges to franchising in Nigeria. One of the most important was that despite the large number of franchisor brands existing across different sectors in Nigeria, only 30% of these companies understood the actual franchise business model.
Chiefly, there are 3 franchise business models operating in Nigeria – Agency model, license model, and distributorship model.
In an agency model, a company like Nairabet operates football betting centres through its many outlets across Nigeria. In such an arrangement, the franchisee makes an upfront franchise fee which earns him betting software, installation, and the requisite training to start a business.
In a license model, businesses obtain licenses from international brands like Nike, T.M. Lewin and Swatch before setting up outlets and selling their products in Nigeria.
In a distributorship model, a company creates a distributor-sub-dealer chain that enables it to distribute its products across thousands of dealers in Nigeria. This is the kind of franchise a company like Vitafoam operates.
Next Steps
Are you considering starting a franchise business in Nigeria and require some more information about the required registrations and other protections you need to consider?
Then why don’t you request a detailed guide from us which sets out all the requirements, processes, and estimated costs for the specific type of franchise you would like to set up in Nigeria.
You can request a detailed report by clicking the button below
How to Start