Monday, January 22, 2018

Guidance for Registering Commercial Franchising Registration in Vietnam

Required documents:
  1. Original application for commercial franchising registration (to be prepared by KENFOX for franchisor's signature & seal);
  2. Original introduction of commercial franchise (to be prepared by the franchisor according to the form);
  3. A copy of the foreign trader's business registration certificate or paper of equivalent validity, certified by a competent agency of the place where the foreign trader is set up (to be prepared by the franchisor);
  4. A notarized copy of the industrial property right protection title in Vietnam (to be prepared by the franchisor);
  5. Original franchise agreement. If the Agreement is made in a language other than Vietnamese, then, it must be translated into Vietnamese;
  6. Original Power of Attorney (to be signed by the franchisor)

Useful information:

1. Definition of the terms concerning the franchise

(Article 3, Decree No. 35/2006/ND-BTM)

1)      "Franchisor" means a trader that grants commercial rights, including also the secondary franchisor in relation to the secondary franchisee.

2)      "Franchisee" means a trader that receives commercial rights, including also the secondary franchisee in relation to the secondary franchisor.

3)      "Secondary franchisor" means a trader that is entitled to sub-franchise commercial rights it has received from the primary franchisor to the secondary franchisee.

4)      "Primary franchisee" means a trader that receives commercial rights from the primary franchisor. The primary franchisee shall be the secondary franchisor defined in Clause 3 of this Article in relation to the secondary franchisee.

5)      "Secondary franchisee" means a trader that receives commercial rights from the secondary franchisor.

6)      "Commercial rights" include one, several or all the following rights:

a/ Right granted to the franchisee by the franchisor that also requests the franchisee to undertake by itself the business of supplying goods or providing services within a system set up by the franchisor and associated with the franchisor's trademark, trade name, business slogan, business and advertising logo;

b/ Common commercial right granted by the franchisor to the primary franchisee.

c/ Right sub-granted by the secondary franchisor to the secondary franchisee under the common commercial franchise contract.

d/ Commercial right granted by the franchisor to the franchisee under the commercial right development contract.

7)      "Business by mode of commercial franchising" means business activities conducted by the franchisee under the commercial franchise contract.

8)      "Commercial right development contract" means a commercial franchise contract whereby the franchisor grants the franchisee the right to set up more than one establishment to do business by mode of commercial franchising in a specified geographical area.

9)      "Common commercial right" means the right granted by the franchisor to the secondary franchisee, permitting the latter to sub-grant commercial rights to secondary franchisees that are not permitted to further grant such common commercial right.

10)  "Secondary commercial franchise contract" means a commercial franchise contract signed between the secondary franchisor and the secondary franchisee regarding common commercial rights.

 

2. Conditions for the franchisor (Article 5, Decree No. 35/2006/ND-BTM)

A trader shall be permitted to grant commercial rights when fully satisfying the following conditions:

  1. The business system intended for franchise has been in operation for at least one year.
  2. Where a Vietnamese trader is the primary franchisee of a foreign franchisor, such Vietnamese trader must conduct business by mode of commercial franchising for at least one year in Vietnam before sub-franchising.
  3. Such trader has registered commercial franchising with the competent agency defined in Article 18 of this Decree.

Article 18.- Decentralization of responsibility to register commercial franchising

1. The Trade Ministry shall register the following commercial franchising activities:

a/ Commercial franchises from overseas into Vietnam, including commercial franchises from export processing zones, non-tariff areas or separate customs areas specified by Vietnamese law into the Vietnamese territory;

b/ Commercial franchises from Vietnam to overseas, including commercial franchises from the Vietnamese territory into export processing zones, non-tariff areas or separate customs areas specified by Vietnamese law.

2. Trade Services and Trade-Tourism Services of provinces or centrally-run cities where traders that intend to franchise make business registration shall register commercial franchising at home, except for franchising across boundaries of export processing zones, non-tariff areas or separate customs areas specified by Vietnamese law.

4)      The in-business goods and/or services covered by commercial rights do not violate the provisions of Article 7 of this Decree.

Article 7.- Goods and services permitted for commercial franchising business

1. Goods and services permitted for commercial franchising business are those not on the list of goods and services banned from business.

2. Enterprises shall be permitted to deal in goods and/or services on the list of goods and services restricted from business or those on the list of goods and services subject to conditional business only after being granted business licenses or papers of equivalent value by the branch-managing agencies or fully satisfying business conditions.

3. Conditions for the franchisee (Article 6, Decree No. 35/2006/ND-BTM)

A trader shall be permitted to receive commercial rights when having the registration of business lines subject to commercial rights.

4. The franchisor's responsibility to supply information

(Article 8, Decree No. 35/2006/ND-BTM)

1)      The franchisor shall have to supply copies of the commercial franchise contract form and the written introduction of its commercial franchise to the intended franchisee at least 15 working days before signing the commercial franchise contract, unless otherwise agreed by the parties. Compulsory contents of the written introduction of commercial franchise shall be specified and promulgated by the Trade Ministry.

2)      The franchisor shall have to promptly notify all franchisees of all important changes in the commercial franchise system, which may affect the latter's business activities by mode of commercial franchising.

3)      Where the franchised commercial right is a common one, the secondary franchisor shall, apart from supplying information according to the provisions of Clause 1 of this Article, have to notify in writing the intended franchisee of the following contents:

a)      Information on the franchisor that has granted commercial rights to it;

b)      Contents of the common commercial franchise contract;

c)      Method of handling secondary commercial franchise contracts in case of termination of the common commercial franchise contract.

5. Contents of the commercial franchise contract

(Article 11, Decree No. 35/2006/ND-BTM)

Where the parties choose to apply Vietnamese law, a commercial franchise contract may have the following principal contents:

1)      Content of franchised commercial right.

2)      Rights and obligations of the franchisor.

3)      Rights and obligations of the franchisee.

4)      Price, periodical franchise fee and mode of payment.

5)      Valid term of the contract.

6)      Renewal and termination of the contract, and settlement of disputes.

6. Time when the contract takes effect

(Article 11, Decree No. 35/2006/ND-BTM)

1)      A commercial franchise contract shall take effect as from the time it is entered into, unless otherwise agreed upon by the involved parties.

2)      Where a commercial franchise contract contains a section on licensing of intellectual property subject matters, such section shall take effect according to the provisions of law on intellectual property.

7. Transfer of commercial rights (Article 15, Decree 35/2006/ND-BTM)

1)      The franchisee may transfer commercial rights to another intended franchisee when the following conditions are satisfied:

a)      The intended transferee satisfies the conditions specified in Article 6 of this Decree;

b)      Such transfer is consented by the franchisor that has granted commercial rights to the transferring franchisee (hereinafter referred to as the direct franchisor).

2)      The franchisee must send a written request for transfer of commercial rights to the direct franchisor. Within 15 days after receiving such written request of the franchisee, the direct franchisor must reply in writing, clearly stating:

a)      Its consent to the transfer of commercial rights by the franchisee; or

b)      Its rejection of the transfer of commercial rights by the franchisee for the reasons specified in Clause 3 of this Article.

Past the above-said time limit of 15 days, if the direct franchisor fails to reply in writing, it shall be deemed as having consented to the transfer of commercial rights by the franchisee.

3)      The direct franchisor may reject the transfer of commercial rights of the franchisee for one of the following reasons:

a)      The intended transferee fails to fulfill its financial obligations under the commercial franchise contract;

b)      The intended transferee has not yet satisfied the criteria for being selected by the direct franchisor;

c)      The transfer of commercial rights may exert a great adverse impact on the existing commercial franchise system;

d)      The intended transferee disagrees in writing to fulfill the obligations of the franchisee under the commercial franchise contract;

e)      The franchisee has not yet fulfilled the obligations toward the direct franchisor, except where the intended transferee makes a written commitment to fulfill such obligations on the franchisee's behalf.

4)      The transferor of commercial rights shall no longer hold the transferred commercial rights. All rights and obligations related to commercial rights of the tranferor shall be transferred to the transferee, unless otherwise agreed.

8. Unilateral termination of the commercial franchise contract (Article 16, Decree 35/2006/ND-BTM)

1)      The franchisee has the right to unilaterally terminate the commercial franchise contract in cases where the franchisor breaches its obligations specified in Article 287 of the Commercial Law.

 

Article 287 of the Commercial Law - Obligations of franchisors

Unless otherwise agreed, franchisors shall have the following obligations:

1.      To supply documents guiding the commercial franchise system to franchisees;

2.      To provide initial training and regular technical assistance to franchisees for managing the latter's activities in accordance with the commercial franchise system;

3.      To design and arrange places of sale of goods or provision of services at the expenses of franchisees;

4.      To guarantee the Intellectual Property rights over objects stated in franchise contracts;

5.      To equally treat all franchisees in the commercial franchise system.

2)      The franchisor has the right to unilaterally terminate the commercial franchise contract in the following cases:

a)      The franchisee no longer holds the business license or papers of equivalent value, which the franchisee is required by law to hold for conducting business activities by mode of commercial franchising.

b)      The franchisee is dissolved or goes bankrupt according to the provisions of Vietnamese law.

c)      The franchisee commits serious law violations which may greatly harm the reputation of the commercial franchise system.

d)      The franchisee fails to remedy its immaterial breaches in the commercial franchise contract within a reasonable time limit, though it has received a written notice from the franchisor requesting the remedying of such breaches.

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