Franchise Procedure [LATEST UPDATE]

The Franchise procedure is a business model in which one party grants the right to use its brand or trademark to another party. Before franchising, the franchisor must register the franchising procedure with the competent authority. In the article below, we will provide our readers with the content and procedures for franchising according to current regulations.

Franchise

What is Franchising?

Franchising is a business model in which an individual or organization is allowed to use the brand, product name, or service of the franchisor to conduct business for a certain period, in exchange for a fee or a percentage of the profit or revenue as agreed upon.

Types of Franchising

In franchising business, there are three basic and commonly applied forms as follows:

Territorial Franchising:

• Foreign Franchising into Vietnam: This is when foreign brand owners invest in Vietnam. Examples: Pizza Hut, KFC.
• Vietnamese Franchising Abroad: This is when Vietnamese brands invest abroad through franchising. Examples: Trung Nguyen, Pho
• Domestic Franchising: Vietnamese brands franchise to domestic entrepreneurs within Vietnam.

Franchising Based on Business Criteria:

• Product Distribution Franchising: The franchisor allows the franchisee to distribute the franchisor’s products or services within a specific area and timeframe.
• Business Formula Franchising: The franchisor not only allows the franchisee to distribute their products or services but also transfers business operation techniques and provides support for basic requirements and skills.

Franchising Based on Business Development Goals:

• Exclusive: The franchisor selects and designates certain partners in a country. The franchisee has the right to open additional stores or sell franchises to any individual or company within their controlled area.
• Regional: The franchisee receives the franchise from the brand owner or from a master franchise buyer to sell to smaller franchises in the region, subject to conditions from the franchisor.
• Area Development: The franchisee has exclusive rights to the brand within a specific area and for a specified period but is not allowed to sell the franchise to anyone else.
• Individual: The franchisor works with and monitors each individual franchisee.

Conditions for Franchising

Legally, to successfully carry out Franchise Procedure, the following conditions must be met:

• Business Registration

When a business is successful and profitable but operates as a household business (which may not require business registration) or under an inappropriate business form (e.g., sole  proprietorship, partnership company), expanding capital and branches will be limited.

• Ensuring Food Safety and Hygiene Conditions

Ensuring these conditions will easily convince partners that the production process is guaranteed, as certified by state agencies, which significantly impacts the franchisor’s reputation and brand.

• Trademark Registration and Protection

To franchise a brand, the franchisor must have registered the trademark. However, failing to register the trademark promptly or delaying registration, leading to the loss of the trademark, is a common mistake made by franchisors:

• Failure to Register the Trademark Promptly: This can result in the trademark being registered by someone else first or the application being stuck at the submission stage. Consequently, the business is not granted protection certificates, which means the State does not recognize ownership of the trademark. Without ownership rights, it is impossible to transfer or use the trademark, making franchising impossible.
• Delayed Registration Leading to Trademark Loss: When the business submits the registration application late, there is a high risk of losing the trademark. In Vietnam, the “First to File” system is followed, meaning priority is given to whoever files first.

Rights and Obligations of the Parties

For the Franchisor

According to Article 286 of the Commercial Law 2005, unless otherwise agreed, the franchisor has the following rights:

• To receive franchising fees.
• To organize advertising for the commercial franchisesystem and the commercial franchise network.
• To conduct periodic or unexpected inspections of the franchisee’s activities to ensure the consistency of the franchising system and the stability of the quality of goods and services.

According to Article 287 of the Commercial Law 2005, unless otherwise agreed, the franchisor has the following obligations:

• Provide the franchisee with guidance documents on the franchising system.
• Provide initial training and regular technical assistance to the franchisee to operate the business according to the franchising system.
• Design and arrange the sales location and service provision at the expense of the franchisee.
• Ensure intellectual property rights for the objects specified in the franchise contract.
• Treat all franchisees equally within the franchising system.

For the Franchisee

According to Article 288 of the Commercial Law 2005, unless otherwise agreed, the franchisee has the following rights:

• Request the franchisor to provide full technical assistance related to the franchising system.
• Request the franchisor to treat them equally with other franchisees in the franchising system.

The franchisee’s obligations are specified in Article 289 of the Commercial Law 2005, unless otherwise agreed, as follows:

• Pay the franchising fee and other payments as stipulated in the contract.
• Invest adequately in facilities, financial resources, and personnel to acquire the rights and business secrets transferred by the franchisor.
• Accept the control, supervision, and guidance of the franchisor; comply with the franchisor’s requirements regarding the design and arrangement of sales locations and service provision.
• Maintain the confidentiality of the franchised business secrets, even after the contract ends or is terminated.
• Cease using the franchisor’s trademarks, trade names, business slogans, business symbols, and other intellectual property rights (if any) or system upon the termination or expiration of the franchise contract.
• Operate in accordance with the franchising system.
• Not sub-franchise without the franchisor’s consent.

Rights and obligations of franchisors

Latest Franchise Procedure

Preparing the Dossier

The application dossier for registration of franchising activities includes:

• An application form for registration of franchising activities using Form MD-1 in Appendix II issued together with Circular 09/2006/TT-BTM.
• A franchise introduction form as per the template in Appendix III issued together with Circular 09/2006/TT-BTM.
• The legal status of the prospective franchisor.
• Protection certificates for industrial property rights in Vietnam or abroad in cases where the transfer of the right to use industrial property objects has been granted protection certificates.

These documents are based on Article 19 of Decree No. 35/2006/ND-CP, amended and supplemented by Clause 4, Article 3 of Decree No. 120/2011/ND-CP, which amends and supplements administrative procedures in several government decrees detailing the Commercial Law (amended and supplemented by Decree 125/2014/ND-CP).

Procedure Steps

The Franchise Procedure is carried out according to the provisions of Article 20 of Decree 35/2006/ND-CP:

1. Step 1:Submit the application dossier for registration of franchising activities to the Ministry of Industry and Trade.
2. Step 2:Review the dossier:
   • Within 5 working days from the receipt of a complete and valid dossier, the competent state authority shall register the franchising activities in the Franchising Activity Register and notify the business in writing of such registration.
   • If the dossier is incomplete or invalid, within 2 working days from the receipt of the dossier, the competent state authority must issue a written notice requesting the prospective franchisor to supplement and complete the dossier.
   • If the competent state authority refuses to register, it must notify the prospective franchisor in writing, stating the reasons for the refusal.

Franchise procedures

Franchise Procedure Consulting Services

At Long Phan, we offer our clients consulting services for Franchise Procedure, including:

• Consulting on the process and procedures required to carry out franchising according to legal regulations.
• Consulting on the rights and obligations of the parties involved.
• Consulting and drafting franchising contracts.
• Consulting on drafting and negotiating franchising content.
• Consulting on drafting and negotiating the renewal, termination of contracts, and dispute resolution.
• Registering franchising activities with the regulatory authorities.

Additionally, depending on the customer’s needs and the actual situation, we can provide other related services for Franchise Procedure flexibly and accurately.

Franchising – a rapidly growing business model – must follow legal procedures and processes to be effective for both parties. The above are the basic contents of Long Phan’s franchising procedure consulting services. If readers have any questions or need advice on franchising contracts and procedures, please contact us at the hotline 0906.735.386 for the fastest support