The Franchise Agreement in Nicaragua

Have you ever wanted to own an establishment like McDonald’s, Marriott International or RE/MAX? All over the world, and the Central American region is no exception, we have these types of businesses that, in the legal context, translate into franchise contracts that establish the legal framework to start the business.

Lawyers call franchises sui generis, onerous contract that includes various contracts in them, such as the distribution contract, know-how contract, brand licensing, supply contract, collaboration contract; it also includes clauses of non-competition, conflict resolution, confidential information, advertising aspects, among others. That said, we must indicate that from a day-to-day perspective, the franchise is a business model with proven success.

Why might it be interesting to obtain a franchise?

Because the franchise is a highly successful business, nationally or internationally; and because the knowledge of the original owner of the business will be embedded within the contract, as well as support in its execution, which gives the person to whom the franchise is granted (known as the franchisee) a competitive advantage in the trade. This type of business is carried out through the franchise contract.

Therefore, the franchise contract is an excellent way to expand a business through a model that has already dominated markets and is the least risky way for an investor to have a business benefiting from the correlation that having the support of a regional, national, or international company represents. For its part, the franchisor is paid an amount that includes royalties.

Franchise regulation in the region

In the countries of the region, we must mention that as general parameters there is no regulation or registration of the franchise contract, but they are allowed and accepted through the following patterns:

    1. They are executed by persons with the capacity to contract.
    2. It is agreed under the principle of the autonomy of the will of the parties, that the contract does not affect public order or contradict express law.
    3. General procurement rules and principles are used.
    4. The contracts covered by the franchise contract are included in its clauses, although it is common for parallel contracts to also be made.

In the case of Nicaragua, the franchisee, when starting his business, must register as a merchant in the competent Public Registry and, if he/she considers appropriate, he/she can establish a company. For its part, in Guatemala some contracts are registered as taxpayers for tax purposes.

It can be concluded that at the regional level we have many similarities in the way of celebrating and recognizing the franchise contract in each of our legal systems but, since the contracts are covered by local laws and to guarantee that their implementation will not contradict internal laws, it is essential to always have the necessary local legal support.

In addition to the contract, its implementation requires the input of several legal areas that allow it to be executed in the fastest and most effective way, which is why having a multi-service firm is important for the development of the business.