Under Algerian law, franchising agreements are not governed by a specific statutory framework. They are therefore considered atypical contracts, whose regulation is based on the general principles of civil and commercial law, as well as on the rules governing commercial practices, competition, and industrial property.

Legal scholarship highlights that, although franchising represents a distribution model of growing interest within the Algerian market, it still lacks a comprehensive and structured legal framework. As a result, the regulation of the relationship is largely entrusted to the contractual autonomy of the parties, within the limits imposed by mandatory rules and economic public policy. This regulatory gap constitutes one of the main sources of uncertainty for economic operators, particularly for foreign investors.

The general legal framework remains that provided by the Algerian Civil Code and the Commercial Code – as regards general principles – alongside Law No. 04-02 of 23 June 2004 on commercial practices, which imposes transparency obligations in relations between economic operators. In addition, competition law must be taken into account, as it requires particular attention to contractual clauses that may have restrictive effects.

Definition and Structure of the Agreement

A franchising agreement may be defined as a contract whereby one party, the franchisor, grants another party, the franchisee, the right to use an organized set of intangible assets and commercial techniques (i.e. trademark, trade name, business name, know-how, and operational methods) in order to market products or services according to an already tested business model, in exchange for the payment of a consideration.

In a franchising agreement, particular importance is attached to the use of the franchisor’s distinctive signs, the transfer of know-how, and the provision of continuous assistance. In the absence of these elements, the relationship may not qualify as franchising and may instead resemble other forms of commercial distribution.

The franchisee operates as an independent entrepreneur, acting in its own name and at its own risk, while being part of an organized network and complying with standards defined by the franchisor. Franchising is thus distinguished from other contractual arrangements by the degree of commercial integration and by the central role of the transferred know-how, supported by ongoing technical and commercial assistance.

Pre-contractual Disclosure and Good Faith

The pre-contractual phase plays a particularly delicate role in franchising, as the prospective franchisee bases its economic decisions on the information provided by the franchisor regarding the business model, costs, and expected profitability.
Under Algerian law, there is no specific regulation governing pre-contractual disclosure in franchising. Law No. 04-02 of 23 June 2004 imposes general transparency obligations, but does not provide for a detailed disclosure regime. As a result, the protection of the franchisee primarily relies on the general principles of fairness and good faith, as well as on the quality of the contractual framework.

In this context, Article 107 of the Algerian Civil Code, which requires contracts to be performed in good faith, is of particular relevance. This principle applies both during the negotiation phase and throughout the performance of the agreement, contributing to partially mitigate the information asymmetry typically inherent in franchising relationships.

Know-how, Trademark and Ongoing Assistance

Know-how constitutes the core element of a franchising agreement. It represents the set of technical and commercial knowledge that enables the franchisee to replicate the franchisor’s successful business model. Legal scholarship emphasizes that such know-how must be identifiable, substantial, and transferable, and that its effectiveness depends on the existence of continuous assistance.

The obligation to provide assistance is not merely ancillary, but rather an essential requirement of franchising, materializing in training activities, operational support, and the ongoing updating of the franchisee.

Reference should also be made to Article 27 of Algerian Law No. 04-02, which prohibits the exploitation of know-how without the authorization of its holder. This provision confirms the legal relevance of know-how under Algerian law and requires that its use and protection be carefully regulated in the contract.

As regards distinctive signs, it is essential that the trademark be properly registered in Algeria prior to the commencement of the activity, in order to avoid disputes or misappropriation.

Economic Structure and Financial Constraints

One of the main critical aspects of franchising in Algeria concerns the management of the payments due to the franchisor, in particular with regard to royalties and entry fees.

Legal literature highlights that the regulatory framework and banking practices governing transfers abroad may constitute a significant obstacle. In particular, difficulties related to the repatriation of royalties represent one of the main factors affecting the entry of foreign franchisors into the Algerian market.

Operational practice also confirms that such payments require prior planning and appropriate contractual structuring, sometimes through the qualification of such payments as technical services or assistance.

Contractual Clauses and Operational Constraints

In the absence of specific legislation, the contract assumes a central role and must be drafted with particular care. It is necessary to regulate in detail the subject matter of the relationship, its duration, the economic terms, the obligations of the parties, the use of the trademark, the management of know-how, and the termination mechanisms.

Particular attention must be paid to clauses affecting the franchisee’s autonomy, such as those relating to exclusivity, supply obligations, or non-compete provisions, which must comply with Algerian competition law.

From an operational standpoint, it is common practice to adapt the franchising model to the specific features of the Algerian market, including through the involvement of local operators or the use of master franchise arrangements, whereby a locally established entity acts as an intermediary in the development of the network.

Governing Law and Dispute Resolution

The parties may contractually determine the applicable law and the competent forum, or alternatively resort to international arbitration. However, mandatory provisions of Algerian law, particularly those relating to competition and commercial practices, may apply irrespective of the parties’ choice.

In this context, careful drafting of contractual clauses concerning governing law, dispute resolution, the economic framework, and the protection of know-how is of crucial importance.

Conclusive remarks

Franchising in Algeria represents a potentially significant tool for commercial expansion, but it operates within an incomplete legal framework and is affected by various operational constraints.

The main challenges do not stem so much from the absence of a statutory definition of the contract, but rather from the lack of a specific regulatory framework governing pre-contractual disclosure, the transfer of know-how, and the management of payments abroad. In such a context, the contract assumes a central role, as it is required to fill the gaps of the legal system and to regulate the relationship between the parties in a detailed and comprehensive manner.

Enrico Ruggeri
de Capoa Law Firm