Mexico is the eighth country in the world by number of franchises. Yet many franchisors and franchisees operate without understanding the legal framework governing this relationship, exposing themselves to costly conflicts.
Legal framework for franchises in Mexico
Franchises in Mexico are governed primarily by the Federal Law for the Protection of Industrial Property (LFPPI) and the Commercial Code. The law requires the franchisor to deliver a Franchise Offer Circular to the prospective franchisee at least 30 calendar days before signing the contract.
The Franchise Offer Circular
This document is the legal passport of any franchise in Mexico. It must contain:
- Description of the franchise system and its history
- Audited financial statements of the franchisor
- Estimated initial investment and required working capital
- Terms and conditions of the franchise contract
- Obligations of both franchisor and franchisee
- Grounds for early termination
Contract clauses you must watch carefully
Before signing a franchise contract, pay close attention to:
- Territorial exclusivity: how many kilometers or what zone does it protect?
- Renewal: under what conditions and at what cost?
- Early termination: when can the franchisor cancel your contract and what compensation do you receive?
- Post-contract non-compete: for how long and in what area are you prohibited from operating a similar business?
- Transfer: can you sell your franchise and under what conditions?