In Puerto Rico Franchises are subject to minimum legal red-tape; which is unusual for such a regulated business environment. There are no filing or registration requirements or rules governing the offering of franchise units. However, the Island is subject to the Franchise Rule of the Federal Trade Commission. This means that prior to offering and selling a franchise you must have a prepared and updated Franchise Disclosure Document (FDD) and comply with the disclosure provisions mandated by the Rule. Puerto Rico franchises must also comply with regulations applicable to all firms wanting to do business in the Island.
Despite this unregulated environment, Puerto Rico franchises need to consider Puerto Rico Dealers Act Law 75. The law regulates the commercial relationship between a principal and a distributor. It is a law that protect Puerto Rico distributors, dealers and sales representatives from a manufacturer’s arbitrary termination or impairment of their commercial relationship. So while the franchise business model is not regulated, there is a specific law governing the relationships between a party that supplies a product or service and the one that distributes it.
There are many definitions of a franchise but in essence it is an ongoing relationship whereby a principal provides a license to another party to conduct business under certain rules and with the support of the principal in return for a monetary consideration. It is also a business model that allows the principal to procure the distribution of a product or service through franchisees. It is this aspect of the relationship that Law 75 regulates.
Persons or entities interested in purchasing individual Puerto Rico franchises to have in their charge the distribution, agency, concession or representation of a given merchandise or service may be considered a ‘dealer’ under Law 75. In such cases, the contractual relationship may fall under the protection of Law 75 – irrespective of the manner in which the parties may call, characterize or execute such relationship- if the franchisee “actually and effectively takes charge of the distribution of a merchandise, or of the rendering of a service, by concession or franchise, on the market of Puerto Rico.”
Puerto Rico Franchises then operate within the shadow of Law 75 and its overriding purpose of preserving the business relation between the parties. Thus, ‘[n]otwithstanding the existence in a dealer’s contract of a clause reserving to the parties the unilateral right to terminate the existing relationship, no principal or grantor may directly or indirectly perform any act detrimental to the established relationship or refuse to renew said contract on its normal expiration, except for just cause.