Business | Economy
Legal framework urged for UAE franchises
Laws on property ownership, stock market trade and company formation, which took hundreds of years to shape in some countries, have sprung up in the UAE in a fraction of the time.
- By Robert Ditcham, Staff Reporter
- Published: 00:00 June 16, 2007
- Current laws in the country have not kept pace with the retail sector's growth.
- Image Credit: Gulf News
Dubai: Laws on property ownership, stock market trade and company formation, which took hundreds of years to shape in some countries, have sprung up in the UAE in a fraction of the time.
According to a legal expert and a spokesman for a local company, franchises, a key contributor to the country's non-oil economy, now require the attention of the UAE's lawmakers.
They say the country's retail franchise industry currently lacks any detailed governmental regulation on the relationship of a local franchise company, such as Emirates Fast Food Company and the foreign 'primary' brand it operates, such as McDonald's.
"The economic conditions are very conducive to retail development, but the legislative conditions are in not at all in line with this huge retail investment and development," said Roger Francis, general manager of Master Franchisers, UAE.
The fact that no specific legal framework has been issued on a sector estimates to be worth $30 billion, and which is growing at 27 per cent a year, may seem surprising.
According to an expert on franchise law, the sector is currently loosely governed by a set of laws established for other retail areas.
"Under the current provisions of law, there are no rules which apply specifically to franchises. A combination of the laws relating to commercial agencies and the general civil law of the UAE governs the field," said Jayshree Gupta, partner at DLA Piper Middle East.
Necessity
Many might ask why laws are needed now in an industry which has been in existence in the UAE for several decades.
"As the industry develops and reaches a new level of sophistication, traditional relationships between companies are giving way to greater formality and demands for regulation on issues such as protection and disclosure," said Gupta.
She speculated that if introduced, a law would be formed in line with international models. It would set out the information that the primary brand is required to provide prospective and existing local franchisees to let them decide whether to enter into or continue with the agreement. "Some framework is needed within which a franchise operates. For example, in most other countries, franchisors have to give disclosure documents to franchisees, but it's not mandatory here," she said.
A disclosure document contains information on the primary brands' corporate structure, its business model and details of other franchise deals it has globally.
A law could also prohibit the franchisor from seeking a general release from liability.
Another potential requirement would be for the primary brand to get written declaration from the local franchisee that it has obtained independent advice from a lawyer, accountant or business advisor relating to their agreement, Gupta added.
Both requirements exist in mature industries such as in the US.
Finally, regulation is likely to bring in the concept of a 'cooling off' period for a prospective franchisee, allowing it to make an informed decision before committing to a deal. This would provide a period within which the franchisee can walk away from the agreement without receiving any penalties, Gupta said.
Regulation is likely to bringin the concept of a'cooling off' period for a prospective franchisee.
Share this article
More from Economy
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Hamdan opens interior design expo
Index 2009 will feature 1,000 exhibitors from 47 nations
-
Marina Residence handovers begin
Despite talk of oversupply, Palm Jumeirah's latest apartments come online.
-
Travel insurance offers peace of mind
The wisest thing to do is to take out travel insurance before you leave.
