Code of Ethics
The Israel Franchise Institute aims to promote ethical franchising in Israel.
This code of ethics was written following many years of experience in Israel and around the world, and the understanding that the basis for the success of the franchise model lies in compliance with ethical rules.
This code of ethics draws inspiration from franchising ethical codes and legislations around the world.
In the absence of a law that regulates franchisor-franchisee relationships in Israel, it is appropriate to adopt ethics rules voluntarily so that franchising will be a successful, relevant business model in Israel.
1. What Is A Franchise?
It is a transaction that includes the following components:
(A) The granting of the right to make use of intellectual property or industrial knowledge or business method for operating a business, in return for the payment of royalties (directly or indirectly);
And (B) The sale or distribution of the goods or services must be carried out under (1) a marketing plan or method dictated by the franchisor; Or (2) in material connection with a trademark or service mark or other intellectual property of the franchisor.
2. Basic Principles: The Four Commandments
The franchisor and franchisee must conduct a business relationship based on profitability, mutual respect, mutual commitment, and communication.
3. Joint Obligations of The Franchisor and Franchisee (Including Prospective Ones)
3.1 Act with integrity and good faith toward one another.
3.2 Make a mutual effort to maintain an open and transparent dialogue with each other.
3.3 Respect each other’s personal and confidential information and refrain from disclosing it to a third party or publishing it.
3.4 Resolve complaints and disputes in good faith and with good intentions, through direct communication and fair and reasonable negotiations. If possible, the parties will try to resolve disputes through professional mediation.
3.5 The franchisor must notify the franchisee of any contractual breach in writing, providing a fair and reasonable period to allow the franchisee to remedy the breach.
3.6 The intentions of any renewal or non-renewal of an agreement towards the end of the period should be provided within a reasonable and logical time.
4. Conditions for The Sale of a Franchise
Minimum conditions that a franchisor must meet in order to sell a franchise:
4.1 Experience and proof of business – (A) Running a successful pilot of a business identical to the business to be operated by the franchisee for a reasonable period prior to the sale of the franchise; And (B) proving the profitability of the business model based on the franchise.
4.2 Rights – The franchisor must be the owner or holder of the right to grant the franchise.
4.3 Financial robustness – The franchisor must have the financial stability to support the franchisee and accompany him to success.
4.4 Procedures, guidelines, and support – The franchisor must clearly formulate the procedures and guidelines for the operation and management of the franchisee’s business under the franchise and establish a system for the guidance and support of the franchisee.
4.5 Preventing conflicts of interest – The franchisor’s business revenue will come from the franchise fees and the payment of royalties only. The franchisor will avoid conflicts of interest.
4.6 Use of external intermediaries – It is the franchisor’s responsibility to ensure that his representatives (including intermediaries) comply with the rules of the ethical code.
5. Franchisor’s Right to Examine Potential Franchisees
A franchisor will only recruit franchisees who, in his opinion, have the skills, knowledge, personal ability, and enough capital to succeed as franchisees.
6. The Franchisor’s Commitment to The Sale Process
6.1 Providing reliable information during the recruitment and sale processes – The information that will be provided by the franchisor in the process of recruiting new franchisees will be devoid of statements that might be confusing or misleading, whether in promotional material, orally, or in meetings.
6.2 Referral to other franchisees of the chain – The franchisor must encourage the potential franchisee to talk and meet with franchisees in the network, and volunteer contact information.
6.3 Receiving all the information necessary to formulate a decision – The franchisor will volunteer as much information as possible to enable the franchisee to properly weigh the advantages and disadvantages of joining the network, subject to a commitment to confidentiality.
6.4 Receiving benefits from suppliers – If the franchisor earns benefits from suppliers, this must be presented transparently to the franchisee, including the use of these benefits.
6.5 Conducting inspections – The franchisor must grant the franchisee a reasonable time to conduct inspections and even recommend that he consult with any person he deems appropriate, including an accountant and attorney, before signing the franchise agreement.
6.6 Signing a memorandum of understanding or principles – An interim agreement must not be binding and constitute only the basis for negotiations for a final and complete agreement.
6.7 Franchise location – A franchisor must suggest an attractive and worthwhile location for the franchise to the franchisee.
6.8 Insurance – A franchisee may choose a insurance company to insure him, in accordance with the franchisor’s reasonable insurance requirements.
7. The Franchise Agreement
7.1 Non-deception – The franchise agreement must be formulated in a clear and explicit manner.
7.2 Agreement period; terms of renewal and sale – The period of the agreement must be long enough to allow the franchisee to earn back his investment. The terms of renewal of the agreement and the possibility of selling the franchise must be clear and explicit.
7.3 Termination and cancellation of the agreement – If this is a franchise operated on property, the franchise period will not be related to the lease period of this property.
8. The Franchisee’s Commitment Throughout the Sale Process, Negotiations, and Signing of The Agreement
8.1 Commitment to the process – The franchisee should not initiate any process of filling out forms or negotiations if he does not intend to take the process of buying the franchise seriously.
8.2 Sharing information – The potential franchisee must be open and honest about the information he provides to the franchisor and respect any information that the franchisor may request or certain questions he may ask.
9. The Franchisor’s Commitment During the Training, Preparation, And Opening Processes
9.1 Theoretical training – The franchisor must ensure that the franchisee receives proper theoretical training related to the management of the business within the franchise, including aspects of operations, finance, purchasing, flow, marketing, employee management, etc.
9.2 Written materials – The franchisor must give the franchisee, in writing, all the instructions and guidelines required for conducting the business successfully (such as a book of procedures and an administrative guide).
9.3 Practical training – The franchisor must properly prepare the franchisee to manage his branch.
9.4 Setting up the location – The franchisor must ensure that the franchisee does not spend more money than necessary on the construction of the location and that he remains within the original budget.
9.5 Opening the location – The franchisor must assist the franchisee at least one week before and one week after opening a new location.
10. The Franchisee’s Commitment During the Training, Preparation, And Opening Processes
10.1 Participating in training programs – The franchisee must participate in all the theoretical and operational training programs created by the franchisor, before opening the branch.
10.2 Focusing on the franchisor’s training program – The franchisee must cooperate fully with the franchisor throughout the training period.
10.3 Insurance – The franchisee must fully comply with the franchisor’s requirements and take care of insurance requirements before opening the business.
11. The Franchisor’s Commitment to Ongoing Support
11.1 Frequency of visits – The franchisor (or his representative) will regularly visit the franchisee and offer ongoing business and operational guidance.
11.2 Providing ongoing technical assistance to the franchisee – Guidance and direction on problems that may occur at any given time during the period of the agreement.
11.3 Advertising and branding – The franchisor must promote and advertise the brand on an ongoing basis, for the benefit of all franchisees.
11.4 Business development – The franchisor must continue thinking of new ideas and tactics for staying ahead of the competition.
11.5 Organizational communication – The franchisor must ensure that ongoing communication, through applicable and relevant platforms, is maintained between the franchisors and the franchisees, and between the franchisees themselves.
12. The Franchisee’s Commitment to Operating the Business
Joint identity – A franchisee must act according to the procedures and instructions of the chain, which must be given to him in good faith, and ensure that his branch operates in a joint identity with the chain’s other branches.