Commercial Franchise Information Disclosure Management Measures --Chinese Franchise Regulations (III)

商业特许经营信息披露管理办法

As discussed below, this law came out on the same date as the "Registration Measures", and it similarly contains a few areas of ambiguities, which I am in the process of writing.

MINISTRY OF COMMERCE
OF
THE PEOPLE’S RUBLIC OF CHINA
16TH ORDER 2007

Commercial Franchise Information Disclosure Management Measures has been promulgated during the 6th meeting of the Ministry of Commerce. It shall go into effect on May 1, 2007.

Minister of Commerce

Bo Xi Lai
April 30, 2007

Commercial Franchise Information Disclosure Management Measures

Article One To protect the bilateral rights of franchisors and franchisees, the Disclosure Measures have been promulgated pursuant to the Regulations of Commercial Franchising Operations (“Regulations”).

Article Two The Disclosure Measures apply to all commercial franchising operations inside the People’s Republic of China.

Article Three The affiliated companies in the Disclosure Measures refer to franchisor’s parent company, subsidiaries controlled directly or indirectly by the franchisor who owns either all the stocks or the majority of stocks, or companies controlled directly or indirectly by the franchisor who owns either all the stocks or the majority of stocks.

Article Four Pursuant to the Regulations, a franchisor shall provide written disclosure of information in accordance with Article Five of the Disclosure Measures thirty days before the execution of a franchise contract with a franchisee, and shall provide a prospective franchisee a copy of the franchise contract.

Article Five A franchisor shall disclose the following information:

1. Information regarding the franchisor and the franchise.

(1) The name, mailing address, contact information, registered agent, president, registered capital, operational scope of the franchisor; and information about company directly-operated units, including the total number of units, addresses, and telephone numbers.

(2) A brief introduction of the franchisor’s experience in franchising.

(3) The franchisor’s registration status.

(4) If the affiliated companies provide products and services to franchisees, basic information of such affiliated companies shall be disclosed.

(5) Information about the franchisor’s or affiliated companies’ bankruptcy or applications for bankruptcy.

2. Basic information about the franchisor’s operational resources.

(1) In written form, provide a prospective franchisee with information that can show the franchisor’s corporate name and business resources related to franchising operations, such as registered trademarks, corporate logo and symbols, patents, proprietary technologies, and operational model.

(2) If the above-mentioned operational resources belong to the franchisor’s affiliated company, basic information about the affiliated company shall be disclosed. Meanwhile, the franchisor shall disclose and explain how the franchise system will be dealt with if the contract, between the franchisor and the affiliated company granting the franchisor such operational resources, terminates.

(3) Information about the litigation or arbitration involving the franchisor’s (of its affiliated company) operational resources, such as registered trademarks, corporate logo and symbols, patents, and proprietary technologies.

3. Basic information about franchise fees

(1) The types, amount, standard, method of payment of fees charged by the franchisor and third parties. If such information cannot be disclosed, the franchisor shall state the reasons thereof. If the standards for fees are not uniform, the franchisor shall disclose the highest and lowest fees, and state the reasons thereof regarding such discrepancy.

(2) The conditions for collecting and returning security deposit; time and method of return of such security deposit.

(3) If a fee is required of a prospective franchisee prior to the execution of the franchise agreement, the franchisor shall state in writing the purpose, condition of return, and method of return of such a fee.

4. Conditions and prices of products, services, and equipments provided to a franchisee.

(1) Whether a franchisee must purchase products, services, and equipments from the franchisor or its affiliated company; the price, conditions thereof for such purchase.

(2) Whether a franchisee must purchase products, services, and equipments from suppliers designated (or approved) by the franchisor.

(3) Whether the franchisee may choose other suppliers, and conditions for such other suppliers.

5. Information about providing continuous services to franchisees.

(1) The specific content and method of providing professional training as well as the specific plans of execution of such training. In addition, also provide information about the location, method, and length of such training.

(2) Specific content of technical support; information referencing the table of contents as well as the relevant page numbers of the franchise operations manual.

6. Information about the methods and content of a franchisor’s guidance for and supervision on a franchisee.


[to obtain the full text of my translation, please e-mail me or leave a comment with a request for same.]

The full text of the law in Chinese can be accessed here.