Duterte Establishes Franchise Business Registry

Outgoing Philippine President Rodrigo Duterte has signed an Executive Order requiring franchise agreements involving MSMEs to be registered with the Department of Trade and Industry as well as the establishment of a franchise registry.

Photo Insert: Outgoing Philippine President Rodrigo Duterte

According to a brief published on Baker McKenzie Blog Global Compliance News by Divina Pastora V. Ilas-Panganiban, Michael T. Macapagal, Reena C. Mitra-Ventanilla, and Joselito Angelo C. Tiglao, the President issued Executive Order No. 169 ("EO 169") on May 12, 2022, which seeks to strengthen the franchising industry and assist businesses, particularly micro, small, and medium-sized enterprises (MSMEs).

The term 'MSME' refers to any business activity or enterprise engaged in industry, agribusiness, and/or services, whether as a sole proprietorship, cooperative, partnership, or corporation, whose total assets, including those arising from loans but excluding the land on which the particular business entity's office, plant, and equipment are located, must fall into one of the following categories: i. ii. Micro: less than PHP 50,000; Cottage: PHP 50,001-PHP 500,000; iii. Small: PHP 500,001 to PHP 5,000,000; and, Medium: PHP 5,000,001 to PHP 20,000,000.

EO 169 requires the inclusion of minimum terms and conditions in franchise agreements involving MSME franchisees, the registration of such franchise agreements with the DTI, and the establishment of an MSME Registry of Franchise Agreements.

Following its publication in the Official Gazette on May 16, 2022, EO 169 is now in effect.

Franchisors who are currently doing business with or intend to do business with MSMEs as franchisees are strongly encouraged to comply with EO 169 in order to take advantage of future incentives or benefits offered by the Philippine government.

As a result, franchisors must ensure that their franchise agreements with their MSME franchisees include the executive order's minimum terms and conditions, as well as timely register such franchise agreements with the DTI once the MSME Registry of Franchise Agreements is established.

Under EO 169, franchisors are responsible for registering their franchise agreements with MSME franchisees with the DTI, with the exception that franchisors who are members of duly registered franchise associations are only required to register their Standard Franchise Agreement with the DTI, as well as execute an undertaking that all future franchise agreements with MSME franchisees shall incorporate the minimum terms and conditions enumerated in the executive order.

However, franchisors who are not members of a duly registered franchise association must register all franchise agreements entered into with MSME franchisees within 30 days of their execution.

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