New Requirements for MSME Franchise Holders in the Philippines

The Philippines issued executive order (EO) 169 to create competitive conditions for micro, small, and medium-sized enterprises (MSME) franchisees in the country.

EO 169 sets out the terms and conditions of franchise agreements with MSME franchisees and requires franchise holders to register with the Department of Trade and Industry (DTI) – if they have a franchise agreement with an MSME franchisee. The DTI will monitor their adherence to the terms and conditions laid out in the franchise agreement and check for the provision of remedies if any party is in breach of the contract.

In May 2022, President Duterte signed and issued executive order (EO) 169 which aims to strengthen the Philippines’ franchising sector and protect micro, small, and medium-sized enterprises (MSMEs) by promoting an equitable and business-friendly environment.

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Under EO 169, franchise holders of MSMEs are now required to have franchise agreements registered with the Department of Trade and Industry (DTI), and all future agreements are to be in line with the required terms and conditions set out in EO 169.

MSMEs in the Philippines are defined as businesses that employ between 10 to 200 workers and have asset sizes (excluding land) between PHP 3 million (US$56354) and PHP 10 million (US$187,866).

Franchisors are responsible for registering their franchise agreements with the DTI, provided that the franchisors are members of registered franchise associations. Moreover, the franchisors are to execute an undertaking that all future agreements with MSME franchisees shall incorporate the terms and conditions under EO 169.

The minimum terms and conditions of franchise agreements with MSME franchisees are as follows:

The DTI has been tasked to provide incentives and other benefits to franchisors who include the mentioned terms and conditions in their franchise agreements. Further, although the inclusion of these terms and conditions is not mandatory for non-MSME franchisees, franchisors can use them as best practice clauses for their own franchise agreements.

Franchisors that are not members of any registered franchise associations must register all their franchise agreements entered into with MSME franchisees.

The DTI will create an MSME registry of franchise agreements. Only franchise agreements between a franchisor and an MSME franchisee may be registered in the said registry.

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This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].