Franchise Vs Partnership, Know the Difference Here!

In the business world, the terms franchise and partnership are not unfamiliar. Lately, franchise and partnership businesses are on the rise because they don’t require big ideas and capital to start.

This type of business is very suitable for beginners and MSMEs who want to start learning business. The business fields also vary, ranging from retail, fashion, expedition, to F&B. Many people may assume that these two concepts have the same meaning. In fact, franchises and partnerships have significant differences. Yes, it needs to be understood that although both involve cooperation between the two parties, they have different characteristics in terms of structure, control, and management. Therefore, in this article, we will explain the fundamental differences between franchises and partnerships, so that businesses can identify which business model suits their individual needs. Read on until the end!

What is a Franchise?

Referring to Regulation of the Minister of Trade No. 71/2019 on the Implementation of Franchising (Permendag 71/2019), a franchise is a special right owned by an individual or business entity to a business system with business characteristics in order to market goods or services that have proven successful and can be utilized and/or used by other parties based on a franchise agreement. Franchising itself is considered one of the easiest and fastest ways to start a business. This is because the trademark that is used as a franchise business is usually already known by the public. In this case, the franchise business must meet several criteria, including (Article 2 paragraph (2) Permendag 71/2019):

1. The business must have a business characteristic;
2. The business has proven to be profitable and has at least 5 years of experience and has business tips to overcome business problems;
3. Have standards for the offering of goods or services made in writing;
4. Businesses are easy to teach and apply by franchise managers;
5. There is ongoing support from the franchise owner; and
6. There are registered Intellectual Property Rights.

To carry out franchise business activities legally in Indonesia, business actors are required to obtain a Franchise Registration Certificate (STPW).

What is Partnership?

Simply put, a partnership is a business strategy undertaken by two parties over a period of time, with the aim of achieving mutual benefits. So, a partnership business model is a business with multiple owners, each of whom has invested in the business, making it tantamount to investing in the business. In the implementation of a partnership business, the business is jointly owned and each party invests its capital. However, each party’s participation in the business can be limited in an agreement. It should be noted that in Indonesia there are ten forms of micro, small, and medium enterprise (MSME) partnerships. This partnership pattern is regulated in Government Regulation Number 7 of 2021 concerning the Ease, Protection, and Empowerment of Cooperatives and Micro, Small, and Medium Enterprises (PP 7/2021). The ten partnership patterns in question include:

1. Core-plasma;
2. Subcontracting;
3. Franchise;
4. General trading;
5. Distribution and agency;
6. Supply chain;
7. Profit sharing;
8. Operational cooperation;
9. Joint ventures; and
10. Outsourcing.

So, what is the difference between Franchise and Partnership?

Basically, a franchise is a type of business that is included in the partnership pattern. Meanwhile, a partnership business does not necessarily have a franchise pattern. Because, partnerships can have a variety of business patterns, not limited to franchises. Then, the franchise has criteria that must be met before it can be given to prospective franchisees, one of which is that the franchise provider must have run the business for five years and proven to make a profit, as stipulated in Article 2 paragraph (3) of Permendag 71/2019. In addition, the decision-making process in partnerships is generally carried out jointly, which is very different from a franchise business. In terms of capital collection, partnerships allow the owners to inject funds according to the needs of the company.

READ ALSO: Are you confused about choosing a franchise business?

Check out the following table to see a further explanation of the differences between franchises and partnerships:

Franchise or Partnership, Don’t Forget to Make a Contract Agreement!

Well, that’s an explanation of the differences between franchises and partnerships. So, has Friend KH determined what type of business you will run? Both franchises and partnerships certainly have their own advantages and disadvantages. Therefore, it is important to choose the type of business that best suits your abilities. The most important thing that should not be missed is the importance of making a contract agreement. Yes, a business cooperation relationship cannot be run only on the principle of trust, because no one can predict what will happen later. Therefore, an agreement contract is made to protect the business from risks that may occur in the future. Regarding the letter of agreement, basically it has been regulated and protected by law. As regulated in Article 1320 of the Criminal Code, the following provisions must be present in the agreement contract:

1. There is an agreement in the form of contents or clauses of the agreement;
2. The age of the parties involved has reached a minimum of 18 years or has already entered into a marriage (legally mature);
3. Regarding a particular matter, in this case regarding a franchise or partnership;
4. A clause is lawful, not contrary to law, decency, or public order.

The agreement contract also has several other purposes and benefits such as:

1. Ensure the efficient and smooth functioning of security and business mechanisms for every party involved;
2. Protect various types of businesses, especially franchise businesses that are run by one party or another;
3. As a tool to monitor and control whether the parties involved have done what has been promised or not, or even violate the things that have been agreed upon in the agreement;
4. Prevent problems from arising in the future because each party can know their rights and obligations, and support the smooth implementation of business;
5. As evidence in the event of a dispute.

To make an agreement contract, it is better to be assisted or made by parties who are authorized or understand the law, one of which is a legal consultant such as a Legal Contract.

KH Contact

Kontrak Hukum is a digital platform that provides affordable and fastest legal services, and has been trusted by more than dozens of large corporate partners in Indonesia in resolving and fulfilling business needs. For only Rp1 million, we can help you to create and review franchise agreements (including STPW) and partnership agreements. With an estimated completion time of three days, we are ready to provide all the legal needs that can help your business run smoothly.

READ ALSO: Don’t Fail!

Let’s run franchise and partnership cooperation easily and safely by visiting the KH Services – Contract of Cooperation page. If you have questions about other business needs, feel free to consult for free at Ask KH or send a direct message (DM) to Instagram @kontrakhukum.