Development of a national franchise in Nicaragua

Franchises are a means of acquiring a business with a high possibility of success. Over time, it becomes an optimal way to obtain a business with the least number of possible risks and the support of a professional team.

It is increasingly common to have foreign franchises in Nicaragua in our commerce, but what has not been very common are national franchises.

We have well-known and successful businesses in the country that continually establish branches but have not ventured into franchising their business. If you wish to franchise a business, a review of your current business model is required, including regulatory, legal and trademark aspects and the support of a multidisciplinary legal team that allows you to identify points of improvement prior to venturing into being a franchisor.

Aspects to consider must be both, legal and business. In the legal aspects, we must remember that the franchise contract continues to be an atypical one that is based on the principle of autonomy of will; also, this contract is characterized by being onerous, consensual, of cooperation between the parties, and can be bilateral or multilateral.

Furthermore, it is considered a complex contract since its preparation involves other ones such as distribution, the license to use a brand, the supplies, the collaboration contract, and this list can be expanded, depending on the complexity of the case to even include the use of patents.

Advantages of national franchises

When it comes to national franchises, we must highlight that one advantage of being able to develop this type of business at a national level is that the franchisor will be available to support the franchisee in a more expeditious and personalized way and without incurring additional expenses, that later must be paid by the franchisee. In addition, it allows the parties to have a closer relationship and makes the process of establishing the franchise easier. This without forgetting that, in a franchise contract, the parties are independent, they do not have an employment relationship. The lack of subordination prevents it from being classified as an employee-employer relationship.

In matters of product quality and image of the franchise, it is the franchisor who reserves the right to provide most of the inputs, finished products, equipment, furniture and advertising material to its franchisees or approve them. This is done in order to always maintain uniformity in the image of its establishments, the staff, the products it sells, as well as adequate standardization of its operations and service levels, which must be stipulated in the franchise contract. Being a national franchise, achieving a relationship with the franchisor’s original suppliers is an important contribution that allows the establishment of the franchise in a shorter time.

In the period immediately following the signing of the franchise agreement, the franchisor may even commit to supporting the franchisee in site selection, lease negotiations, equipment acquisition, initial inventory selection and inaugural promotions. In advertising efforts, when the franchise is national, it may even be established in the franchise contract to share expenses proportionally, which would be a benefit to the franchisee.

From the above, it follows that the relationship between the franchisor and the franchisee must always be close and trustful so that the franchise can develop and be successful.

Franchise Regulation

In Nicaragua, the franchise contract is only regulated by the will of the parties so long as it does not contradict national legislation.

That said, we should consider the following minimum aspects:

    1. Preparation of a franchise agreement.
    2. Registration of the franchisee as a merchant.
    3. If necessary, the constitution of a company by the franchisee, which must be registered.
    4. Be registered with the General Directorate of Revenue and Municipality’s Office for the payment of corresponding taxes.

To prepare a franchise contract, it is important that the parties have specialized advice in the legal areas that are within this contract, namely: intellectual property, commercial law, conflict resolution, tax, among others.

Likewise, for registration as a merchant and the constitution of a company, you must have the support of corporate lawyers and for registration in the respective General Directorate of Revenue and Municipality’s Office, the assistance of tax lawyers.

Multidisciplinary and specialized legal support will allow negotiations between the parties to develop effectively, therefore we recommend that if you wish to make your business a franchise, contact the appropriate professionals to carry out this business successfully.