SCALING UP NIGERIAN ECONOMY THROUGH FRANCHISE BUSINESS MODEL

Franchise Business Laws in Nigeria

ABSTRACT
Franchise Business Model (FBM) enables companies to expand their brand presence while allowing
entrepreneurs to operate under an established name. In Nigeria, franchising is growing across sectors
such as food and beverage, retail, and professional services. However, the legal framework governing
franchising is not well-defined, relying on a mix of contract law, intellectual property law, and
regulatory approvals. This paper explores the legal foundations of the franchise business model in
Nigeria, highlighting relevant laws, regulatory bodies, challenges, and best practices.

INTRODUCTION
Franchising has become a popular business model globally, allowing businesses to scale while
offering franchisees the advantage of operating under an established brand. In Nigeria, this model has
gained traction with the entry of global brands such as KFC, Domino’s Pizza, and Krispy Kreme, as
well as indigenous franchises like Chicken Republic and Tantalizers.
Despite its increasing adoption, franchising in Nigeria operates within an ambiguous legal
framework, as there is no specific franchise legislation. Instead, it is governed by various legal
instruments, including contract law, intellectual property law, and business registration regulations.
This article explores the legal foundations that govern franchising in Nigeria. It examines the core
legal instruments, highlights the roles of key regulatory agencies, identifies challenges inherent in the
current framework, and proposes best practices for legal compliance.UNDERSTANDING THE FRANCHISE BUSINESS MODEL

A franchise is a business arrangement where a franchisor (the owner of the brand) grants a franchisee
(the investor) the right to use its brand name, business model, and operational systems in exchange
for fees and royalties.

Types of Franchises in Nigeria
Franchising structures in Nigeria typically fall into the following categories:
1. Product Distribution Franchise: In this model, the franchisee is permitted to sell and
distribute the franchisor’s products. An example is seen in industries like Coca-cola where
bottling companies operate under a franchisor’s brand guidelines.
2. Business Format Franchise: This model includes not only the distribution of products but also
the entire operational blueprint of the franchisor. It covers branding, marketing strategies,
operational manuals, and customer service protocols. International brands such as fast-food
chains have successfully implemented this model in Nigeria.
3. Manufacturing Franchise: Here, the franchisee manufactures goods that bear the franchisor’s brand name. The franchisor supplies the necessary technology, design, or expertise, while
the franchisee focuses on production and distribution.
Each type requires clear legal agreements that define the relationship between franchisor and
franchisee.

The Legal Framework Governing Franchising in Nigeria
Nigeria does not currently have a franchise-specific statute. Instead, a combination of general laws
and regulations governs the franchising process. Below is a detailed examination of these legal
instruments:
1. Contract Law
The primary legal foundation of franchising in Nigeria is contract law, which governs the franchise
agreement. Under the general principles of contract laws, contracts must meet the requirements of
offer, acceptance, consideration, and intention to create legal relations.
Franchise agreements must also comply with unfair contract terms regulations, ensuring that terms
are not excessively restrictive on the franchisee.
2. Intellectual Property (IP) Laws
The protection of intellectual property is paramount in franchising because it ensures the integrity
and continuity of a brand. In Nigeria, several legal instruments are central to IP protection:

1. Trademarks Act, Cap T13 LFN 2004: This act allows franchisors to register and safeguard
their brand names, logos, and slogans against infringement.
2. Patents and Designs Act, Cap P2 LFN 2004: It provides protection for unique business
processes, product designs, and innovations integral to the franchise model.
3. Copyright Act (2022): This act extends protection to training manuals, software, marketing
materials, and other proprietary content provided to franchisees.
Effective enforcement of these IP laws is crucial to prevent counterfeiting and unauthorized use,
which could otherwise undermine the value of the franchise brand.

3. Companies and Allied Matters Act (CAMA) 2020
CAMA governs the incorporation, registration, and regulation of businesses in Nigeria. For
franchising, this act is significant because it:
1. Regulates Corporate Structures: Franchisees and franchisors must comply with the statutory
requirements for business registration.
2. Facilitates Foreign Investment: Foreign franchisors are often required to partner with or
register as Nigerian entities, ensuring that local operations adhere to national corporate
governance standards.
3. Ensures Transparency and Accountability: Through mandatory disclosures and regulatory
oversight, CAMA helps maintain a level playing field in the marketplace.
4. Competition and Consumer Protection Laws

The Federal Competition and Consumer Protection Act (FCCPA) 2018 plays a pivotal role in
ensuring fair competition and consumer protection.

It prohibits anti-competitive practices such as price-fixing and unfair trade restrictions.
Franchise agreements must not impose unreasonable exit restrictions on franchisees.
5. Foreign Exchange and Investment Regulations
Franchise businesses involving foreign brands must comply with investment and forex laws.
The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act regulates the payment of
franchise fees and royalties in foreign currency.
The Nigerian Investment Promotion Commission (NIPC) Act facilitates foreign franchisor
investments.

Foreign franchisors must register their agreements with NOTAP before repatriating funds.
KEY REGULATORY AGENCIES
Franchising in Nigeria is subject to multiple regulatory bodies, including:
1. Corporate Affairs Commission (CAC): Oversees business registration and compliance.
2. Trademarks, Patents & Designs Registry: Administers IP protection.
3. Federal Competition and Consumer Protection Commission (FCCPC): Enforces fair
competition rules.
4. National Office for Technology Acquisition and Promotion (NOTAP): Approves foreign
franchise agreements.
5. Nigerian Investment Promotion Commission (NIPC): Regulates foreign investments in
franchising.
Challenges in Nigeria’s Franchise Legal Framework
Despite the presence of various laws that collectively support franchising, several challenges persist:

1. Absence of a Dedicated Franchise Law

Nigeria’s legal framework for franchising is pieced together from general laws rather than a specific
franchise statute. This creates uncertainties regarding dispute resolution, standardization of
agreements, and comprehensive protection for both franchisors and franchisees.
b. Bureaucratic Hurdles and Delays
The registration processes with agencies such as NOTAP and the CAC can be lengthy and
cumbersome. Bureaucratic delays not only slow down market entry but may also deter foreign
investors who are accustomed to more streamlined regulatory environments.

c. Enforcement of Intellectual Property Rights
While the legal framework for IP protection exists, enforcement remains a challenge.
Counterfeiting, brand infringement, and inadequate penalties for violations continue to pose risks
for franchisors, potentially diminishing the value of the brand.
d. Foreign Exchange and Repatriation Issues
The repatriation of profits and payment of royalties is often hindered by stringent foreign exchange
controls. These financial restrictions can dissuade foreign franchisors from fully committing to the
Nigerian market, thereby limiting the variety of franchise options available locally.
e. Inadequate Legal Awareness
Many small and medium franchisees may not have adequate legal support or understanding of the
complexities involved in franchise agreements. This gap can lead to poorly drafted contracts,
disputes over rights and obligations, and ultimately, business failure.

Best Practices for Franchisors and Franchisees
Given the complex legal landscape, both franchisors and franchisees must adopt best practices to
mitigate risks and ensure compliance:
For Franchisors
1. Develop Comprehensive Franchise Agreements. Detailed contracts that clearly outline the
rights, obligations, and performance expectations can help prevent disputes. Include clauses
on intellectual property usage, territorial rights, fees, and dispute resolution mechanisms.
2. Invest in IP Protection. Ensure that trademarks, patents, and copyrights are properly
registered and actively monitored. Consider regular audits to detect and address any
infringement issues promptly.

3. Partner with Local Legal Experts, engage with legal professionals who have a thorough
understanding of Nigerian business law. Their guidance can be invaluable in navigating
local regulatory requirements and expediting bureaucratic processes.
4. Comply with NOTAP and NIPC Requirements, register all necessary agreements with the
appropriate regulatory bodies to avoid future legal complications and to facilitate smoother
operations.

For Franchisees
1. Conduct Due Diligence before entering into any franchise agreement, thoroughly
investigate the franchisor’s business history, financial stability, and reputation.
2. Understand Local Legal Implications, Familiarize with the relevant Nigerian laws,

including the Contract laws, CAMA, and consumer protection statutes.
3. Negotiate Fair Exit Clauses, ensure that the agreement includes clear provisions for
termination, renewal, and dispute resolution.
4. Maintain Ongoing Compliance, regularly review regulatory updates and ensure that
operations remain in line with any changes in the legal environment.

Recommendations and Future Outlook
To enhance the growth and sustainability of the franchise business model in Nigeria, several
recommendations can be made:
1. Enact a Dedicated Franchise Law: The Nigerian legislature should consider developing a
comprehensive franchise statute that consolidates existing legal provisions. Such a law would
provide clear guidelines for franchise agreements, dispute resolution, and the overall
regulation of franchise operations.

2. Streamline Regulatory Processes:Efforts should be made to simplify registration and approval
procedures with agencies like NOTAP and the CAC. Improved efficiency would encourage
more domestic and international investments in the franchise sector.
3. Strengthen Enforcement Mechanisms: Enhancing the enforcement of intellectual property
rights and consumer protection laws would protect the integrity of franchise brands. Increased
penalties for infringements and a dedicated legal framework for franchising could serve as
deterrents to potential violations.
4. Promote Legal and Business Education: Workshops, seminars, and continuing education
programs should be made available to franchisees and franchisors. A better understanding of
legal obligations and best practices can lead to more robust and sustainable business
relationships.

5. Encourage Public-Private Dialogue: Stakeholders from both the public and private sectors
should engage in dialogue to identify legal bottlenecks and develop pragmatic solutions. Such
collaboration could drive policy reforms that benefit the entire franchising ecosystem in
Nigeria.

Conclusion
The franchise business model holds immense potential for economic growth in Nigeria. Its ability to
provide a structured yet flexible framework for business expansion makes it attractive to both local
entrepreneurs and international investors. However, the success of franchising in Nigeria is
intrinsically tied to the legal environment in which it operates. While a combination of contract law,
intellectual property regulations, and corporate statutes currently underpins franchise operations,
challenges such as bureaucratic delays, enforcement issues, and the absence of a dedicated franchise
law continue to pose obstacles.

By adopting best practices, engaging local legal expertise, and advocating for regulatory reforms,
both franchisors and franchisees can better navigate these challenges. Ultimately, a clearer, more
comprehensive legal framework would not only boost investor confidence but also facilitate a more
vibrant and competitive market for franchise businesses in Nigeria.

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Contributors:

Author:

Sandra Chukwuemeka, Associate.

Supervisor:
Peter N. Akpu Managing Partner

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