The Franchise in Panama

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By Ileana Céspedes, Quijano & Associates

Law 35 of 1996 whereby provisions concerning industrial property were enacted established in its Article 126 that there exists a franchise when, by means of the user license of a trademark, a technical know-how is transmitted or technical assistance is provided so that the person to whom the franchise is granted may produce or sell goods or provide services in the same manner and with the operational, commercial and administrative methods established by the owner of the trademark in order to maintain the quality, the prestige and the image, which the trademark represents. Panamanian legislation does not deal with the basic requirements of a user license contract by which a franchise is established. It only indicates that it is to be considered a franchise when technical know-how is transmitted or when technical assistance is provided in order to develop the business in the Republic of Panama while complying with certain quality standards.
This means that under Panamanian legislation both the franchiser and the franchisee shall only have the obligations and the rights contained in the user license contract, which is submitted to the Directorate General of Industrial Property of the Ministry of Commerce and Industries (DIGERPI) for its registration. Under Article 122, the following requirements have to be fulfilled in order to obtain the registration of a user license:

  1. Personal or corporate name, nationality, place of organization, number of identity certificate or personal identity of the parties.
  2. Denomination and/or description of the trademark, together with an indication of the number and date of registration.
  3. Specifications of the products or services covered by the authority to use the trademark.
  4. Type and term of the user license.

For a user license to be registered with the Directorate General of Industrial Property of the Ministry of Commerce and Industries (DIGERPI), the trademark must be already registered, otherwise the application will not be processed until the Certificate of Registration of the owner of the trademark has been issued.

The franchise contract in Panama is governed by the principle of the autonomy of the will of the parties as provided by the Civil Code, since the franchiser and the franchisee may freely establish their rights and obligations, as well as the jurisdiction to which they will submit in the event of a conflict arising from the franchise contract concerning a specific activity.

In order to establish a franchise in Panama, it only has to comply with the existing legislation concerning industrial property and the other conditions required for a corporation to operate, such as the Notice of Operation (commercial license), and in the case of franchises of food, it must have the respective health permits.

The first franchise to be established in Panama was in the year 1957 concerning the vehicles of frozen products of Tastee Freeze, and two years later, that is in 1957, the Dairy Queen franchise which still remains in the market. The franchises that have more extensively developed in Panama are the McDonalds, Kentucky Fried Chicken, Pizza Hut and Burger King.

There are also national franchises such as Pio Pio and Don Lee. The Authority of the Micro, Small and Medium Enterprises, known as "AMPYME" in Spanish, is now developing models of franchises for such smaller enterprises in the Republic of Panama, and its main goal is the development of the methods of a system of franchises in four stages:

  1. Knowledge Stage: during which the investor shall have the opportunity to learn every detail of what should be understood as a franchise.
  2. Planning Stage: reviewing and establishing the strategy to adopt in the development of the franchise and the guidelines to follow.
  3. Execution Stage: all of the manuals discussed in the planning state are executed and developed.
  4. Establishment Stage: advisory services are provided concerning the establishment and actual operation of the franchise system in real time.

AMPYME is, with its model, mainly seeking to create a document for investors involved in the Franchise System, to use as an instrument for planning, induction and consultation, in order to achieve knowledge of the franchise in its strategic, commercial and operational aspects, while at the same time identifying the expectations of the franchiser and the objectives to achieve in the development of the project.

AMPYME has identified the following advantages or contributions of franchises to the national government:

  • Fostering the development of "micro, small and medium" enterprises.
  • Creating jobs.
  • Fostering self-employment.
  • Increase in the quality and productivity of commerce and the services.
  • Increase in the GIP
  • Increase of consumption.
  • Development of the investment.
  • Receipt of foreign currency due to export of franchises.
  • More offer of products and services in distant zones.
  • Regional development.

Due to the construction of new commercial centers, there are now more than 200 franchises in Panama taking into account both the local and the international ones. The international ones are the ones prevailing in the market, and this is one of the reasons why AMPYME has chosen ten concepts to develop for the creation of franchises, such as beauty salons, ceviche sales, ice cream, roast meat restaurants, laundries, shoemakers and tailor shops, popular drugstores, child care centers, bakeries and sweets producers.

Finally, the success of franchises in Panama is based on the trust and smooth communication of the parties and the enterprise will of the franchisee, as well as the professional administration of the franchiser.

Ileana Céspedes
Quijano & Associates - Attorneys at Law
Panama City, Republic of Panama
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