Policy on Franchise Operation

An Expert's View about Regulatory Bodies in China

Last updated: 22 Feb 2011

Policy on Franchise Operation

4.1 Franchiser Access System

Under mainland rules and regulations, commercial franchising refers to "a form of business operation whereby an enterprise possessing operation resources such as registered trademark, corporate logo, patent, patented technology etc (the franchiser) grants permission to another operator (the franchisee) to use the operation resources it possesses by means of a contract, under which the franchisee operates the business according to the standard operation mode specified in the contract and pays the franchiser a franchise fee".

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4.2 Franchiser Record Filing System

Under existing rules, to undertake franchise operation, it is not necessary to apply for a separate licence. However, the franchiser has to file a record with the commerce department within 15 days upon signing the first franchise contract, and must thereafter report to the government every year on details regarding the signing of contracts within the year.

1. Filing Authorities
• A franchiser undertaking commercial franchising in a province, autonomous region or municipality directly under the central government should file a record with the local commerce department of the people's government;

• For franchise operation spanning across provinces, autonomous regions and municipalities directly under the central government, a record should be filed with the commerce department under the State Council.

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4.3 Franchiser Information Disclosure System

The franchiser should, at least 30 days prior to the conclusion of the franchise contract, provide the franchisee in written form with a copy of the franchise contract, as well as information on the basic conditions and commercial credit records of the franchiser and its legal representative, the amount of franchise fee payable and payment method. The information provided by the franchiser must be true, complete and correct. No omission or false information is allowed.

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4.4 Franchise Contract

1. The franchiser and the franchisee must conclude the franchise contract in written form;

2. It must be stipulated in the franchise contract concluded between the franchiser and the franchisee that the franchisee may unilaterally terminate the contract within a specified period of time after its conclusion;

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4.5 Conduct of the Franchiser and Franchisee

1. The franchiser must provide the franchisee with a franchise operation manual; the promotion and publicity fees collected by the franchiser from the franchisee must be used for the purposes stipulated in the contract; there must not be any fraudulent or misleading act in the promotion and publicity activities conducted by the franchiser.

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Posted: 20 February 2011, last updated 22 February 2011

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