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The Administrative Measures on Commercial Franchising

商业特许经营管理办法

The Administrative Measures on Commercial Franchising (the New Measures)

Issued: December 31, 2004

Effective: February 1, 2005

Issuing Authority: Ministry of Commerce (MOFCOM)

Main Contents: The New Measures replace the 1997 Provisional Administrative Measures on Commercial Franchising, specifying the qualification criteria for franchisors and franchisees and their respective rights and obligations. 

A franchisor must (1) be a legally established economic entity, (2) have the right to franchise the required resources (for example, trademarks) to others, (3) be able to provide direction and training for franchisees, (4) directly or indirectly own at least two stores within China, each of which must have been in operation for over one year, and (5) have good standing and no record of fraud.  A franchisee must be a legally established economic entity and possess the necessary resources for the franchised business.

The New Measures also put forward the common terms and conditions that should generally be included in a franchise agreement, and require that the terms of such agreements be no less than three years.  The franchisor is obliged to disclose necessary information (including, but not limited to, basic information on the franchisor, the structure of the franchising fees and expenses, training, the status of franchised trademarks, information on existing franchisees) to the franchisee 20 days prior to the execution of the franchising agreement.  They must also file the information on the executed franchising agreements annually for recording with the appropriate commercial authority.

The New Measures defer to other laws and regulations for the administration of foreign-invested enterprises which are engaged in, or intend to become engaged in, the franchising business.  However, each foreign invested enterprise must file its franchising business with the original approval authority for recording.