Franchising is directly regulated in Mexico by the Industrial Property Law (IPL) and indirectly by other related legislation. Pursuant to the IPL, a franchise agreement shall exist when (i) a trademark is licensed, (ii) the franchisor transfers know-how or provides technical assistance, and (iii) the franchisee acquires the right to produce and/or sell products or render services in a uniform manner, with the operative, commercial and administrative methods required by franchisor, so that the provided products or services maintain the same quality, prestige and image. If an agreement contains these elements, it will be considered as a franchise agreement under Mexican law, being therefore subject to the applicable legal requirements - regardless of the name attributed to the contract.
The IPL imposes upon franchisors an obligation to disclose certain information to a prospective franchisee, the Disclosure Document, at least 30 business days prior to signing the franchise agreement; such term must be calculated per the calendar of non-business days published by the Mexican Institute of Industrial Property - or the Trademark Office.
The Disclosure Document must reveal to the prospective franchisee certain technical, economic and financial information about the franchise, including, among others, the description of the franchise, intellectual property involved in the same, amounts and concepts of payments from franchisee to franchisor, technical assistance and services to be provided by franchisor, the geographical area where the franchise may be effective, as well as franchisee's main rights and obligations under the agreement.
The IPL establishes that a franchise agreement must be in writing and shall contain certain mandatory provisions, which cannot be overridden by the parties, including:
* Minimum size and investment characteristics of the franchise's premises;
* Minimum level of inventory, marketing and advertising policies;
* Provisions relating to the merchandise supply and the hiring of suppliers;
* Applicable criteria and methods to determine franchisee's commissions and profit margins;
* Training and technical assistance from franchisor to franchisee, and;
* Events of termination under the franchise agreement, since the parties can only terminate a franchise agreement unilaterally if the term thereof is indefinite or if there is a just cause to do so.
Other Legal Considerations