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
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.
Wednesday, May 23, 2007
Commercial Franchise Information Disclosure Management Measures --Chinese Franchise Regulations (III)
Posted by Brad Luo at 8:57 AM
This new law, yet another importance piece of regulation in the Chinese franchise realm, came into effect on May 1,2007. It was signed into law on April 30, 2007, just one day before the effective date of the Regulations of Commercial Franchising Operations of the People's Republic of China. There seems to have quite a few areas of ambiguity, as does the Commercial Franchise Disclosure Management Measures, which I will post next.
Commercial Franchise Registration 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 CommerceBo Xi LaiApril 30, 2007
Commercial Franchise Regisitration Management Measures
Article One To strength the regulatory management of commercial franchising, and to maintain orders in the franchising market, the Measures have been promulgated pursuant to the Regulations of Commercial Franchising Operations (“Regulations”).
Article Two The Measures apply to all commercial franchising operations inside the People’s Republic of China.
Article Three Relevant departments, in charge of commercial regulations in the Ministry of Commerce, Provinces, Autonomous Regions, and Municipalities, are the proper registration agencies. If franchising operations are within Provinces, Autonomous Regions, and Municipalities, shall register the franchise in the departments in charge of commercial regulations; if franchising operations cross boundaries of Provinces, Autonomous Regions, and Municipalities, the franchise shall be registered in the relevant department of the Ministry of Commerce.
The management of franchise registration shall be implemented in a national network. Franchisors in compliance with the Regulations shall register their franchise through the governmental website: http://www.mofcom.gov.cn/
Article Four Any person or entity has the right to report activities in violation of the Measures to agencies in charge of franchise registration.
Article Five A franchisor petitioning for registration shall provide the following documentation to the registering agency:
(1) A brief introduction of the franchise.
(2) A brief introduction of the distribution of all the franchised units in China.
(3) A copy of the franchisor’s marketing plan.
(4) A copy of the franchisor’s corporate business license or other important documents evidencing eligibility.
(5) A copy of the registrations of the franchisor’s trademarks, patents or other business resources related to the franchising operations.
(6) Documents provided by a commercial regulatory department in a city with administrative districts, evidencing a franchisor’s compliance with Article 7 Section 2 of the Regulations; with respect to company-operated units located outside China, a franchisor shall provide documents evidencing same (including Chinese Translation), which shall be notarized and certified by a Chinese Consulate located in the administrative region as such company-operated units.
The above section does not apply to a franchisor in franchising operations before May 1, 2007, but such a franchisor shall provide a copy of the first franchise agreement executed by both the franchisor and a franchisee inside China.
(7) Sample Franchise Contract.
(8) Table of contents of the Franchise Operation Manual (Must include the page number of each chapter and the total number of pages. With respect to Franchise Operation Manual accessible via franchise system intranet, provide the estimated pages after printing.).
(9) With respect to franchising of services or products subject to pre-approval pursuant to relevant laws and regulations, franchisor must provide documents evidencing such approval by relevant government agency.
(10) Franchisor’s affidavit, signed and sealed by legal agent of such franchisor.
The above-listed items (1) through (3) shall be filled out directly on the website; items (4) through (10) shall be submitted electronically via the website in PDF format.
To access the complete texts of the law in Chinese, go here.
Posted by Brad Luo at 8:53 AM
As of May 1, 2007, the new Regulations of Commercial Franchise Operations of China is effective. Coupled with the rush of investments before the 2008 Olympics games in Beijing, this new law is expected to generate a lot franchising activities in China. Read this article in Dallas Business Journal. Here is a list of the new laws that went into effect on May 1, 2007. (In Chinese only)
Posted by Brad Luo at 8:51 AM
Regulations for the Administration of Commercial Franchising Operations --China Franchise Regulations (I)
Order of the State Council of the People’s Republic of China-1
The 485th Order
The Regulations for the Administration of Commercial Franchising Operations, which was adopted at the 167th executive meeting of the State Council on January 31, 2007, are hereby promulgated and shall come into force as of May 1, 2007.
Premier Wen Jiabao
Chapter 1 General Provisions
Article 1 The Regulations are promulgated to standardize commercial franchising operations, enhance the healthy, orderly development of commercial franchising, and maintain orders in the market.
Article 2 All commercial franchise operations shall conform to the Regulations.
Article 3 Commercial franchise herein (franchise hereafter) refers to a contractual relationship whereby an enterprise (franchisor hereafter) with registered trademark, trade name, patent and other business resources grants a franchisee the right to use its business resources, and the franchisee operates under a uniform operational model and pays a franchise fee to the franchisor in accordance with terms of the contract.
Individuals and entities, which are not registered enterprises, shall not engage in franchising operation as franchisors.
Article 4 All franchise operations shall be conducted in accordance with the principles of free will, good faith and fair dealing.
Article 5 The Ministry of Commerce shall be responsible for the administration of franchise operations on a national scale pursuant to the Regulations. Commerce regulatory authorities of provinces, autonomous regions, municipalities and districts shall be responsible for the administration of franchise operations therein.
Article 6 Any entity or individual has the right to report activities in violation of the Regulations to commerce regulatory authorities. Such authorities receiving reports shall respond in a timely manner in accordance with the law.
Chapter 2 Franchise Operations
Article 7 The franchisor shall have a mature business model, and the capacity to provide a franchisee with operational guidance, technical support and training services.
A franchisor shall have at least two directly-operated units under operation for more than one year.
Article 8 The franchisor shall register a franchising operation with commerce regulatory bodies pursuant to the Regulation within 15 days of its first franchise contract. Franchise operations within provinces, autonomous regions and municipalities shall register with commerce regulatory authorities therein; franchise operations across provinces, autonomous regions and municipalities shall register with the Ministry of Commerce.
For registration, the franchisor shall provide the following documentations:
(1) A copy of business license or certification of business registration;
(2) A copy the standard franchise contract;
(3) Franchise operation manual;
(4) Marketing plan;
(5) Written affidavit of compliance with Article 7 and supporting documents;
(6) Other files and documents mandated by the Ministry of Commerce.
A franchisor, whose franchises either products or services, shall also provide documents evidencing lawful approval of such franchise operations.
Article 9 Commerce regulatory authorities shall register a franchise operation within 10 days upon receipt of a franchisor’s documents pursuant to Article 8, and notify the franchisor. Said regulatory authorities may request from a franchisor additional supplemental file and documents within seven days if a franchisor’s files and documents are not complete.
Article 10 Commerce regulatory authorities shall publish the name of registered franchisors on government websites and update such websites in a timely manner.
Article 11 To engage in franchise operations, the franchisor and franchisee shall execute a written franchise contract.
A franchise contract shall include the following:
(1) Basic information of the franchisor and franchisee;
(2) Content and the term limit of the contract;
(3) Type, amount and method of payment of franchise fee;
(4) Specific content and the method of providing operational guidance, technical support and training services;
(5) Requirements on the quality and standard of products or services and quality control procedures;
(6) Marketing or advertising of products or services;
(7) Consumer rights protection and responsibilities for remedial damages in franchise operations;
(8) Revision, cancellation and termination of the franchise contract;
(9) Responsibilities for breach of contract;
(10) Methods of dispute resolution;
(11) Other contractual provisions agreed to by the franchisor and franchisee.
Article 12 The franchisor and franchisee shall provide in the franchise contract that the franchisee can unilaterally cancel the contract within an agreed period of time.
Article 13 The term limit for a franchise contract shall be no less than three years, except for express agreement by the franchisee.
The above section does not apply to the renewal of a franchise contract between a franchisor and franchisee.
Article 14 A franchisor shall provide a franchisee a franchise operation manual, and provide a franchisee with franchise operations guidance, technical support and training services in the method agreed to in the contract.
Article 15 The standard and quality of franchise products or services shall conform to relevant laws, administrative regulations and other governmental regulatory measures.
Article 16 If a franchisor requires a fee from a franchisee prior to the execution of a franchise contract, the franchisor shall explain to the franchisee in written format the purpose, condition and method of return of such fee.
Article 17 A franchisor shall utilize the advertising fee collected from a franchisee for purposes agreed to in the franchise contract. A franchisor shall disclose to a franchisee the status of usage of the advertising fee in a timely manner.
A franchisor shall not engage in fraudulent and misleading activities in the course of advertising and publicizing a franchise. In its advertising, the franchisor shall not include content concerning a franchisee’s earnings results in the franchise operation.
Article 18 Without a franchisor’s permission, a franchisee shall not transfer the right to a franchise unit to others.
The franchisee shall not disclose or allow others to use a franchise’s trade secrets gathered in the course of operations.
Article 19 A franchisor shall provide yearly reports to commerce regulatory authorities regarding the franchise contracting status within the first season of each year.
Chapter 3 Information Disclosure
Article 20 A franchisor shall establish and implement a complete disclosure system in compliance with the regulations of the Ministry of Commerce.
Article 21 A franchisor shall provide franchisee written disclosures of information as required in Article 22 at least 20 days prior to the execution of a franchise contract, and the franchisor shall provide a franchisee a copy of the franchise contract.
Article 22 A franchisor shall provide the following information to a franchisee:
(1) the franchisor’s name, address, legal representative, registered capital, scope of business and basic information in franchising activities;
(2) the basic information about the franchisor’s registered trademark, trade dress, patent, patented techniques and operational model;
(3) the type, amount and method of payment of franchise fee (including whether a security deposit is required and the condition and method of return of any deposit.)
(4) the price of and condition therefor the provision of products, services, and equipments to the franchisee;
(5) the specific contents, method and implementation plans of continuous operational guidance, technical support, and operational training to the franchisee;
(6) the specific method of guidance and supervision with respect to the franchisee’s operational activities;
(7) the estimated initial investment for a franchise unit;
(8) the number, location, and operational assessment of all the franchisees inside China;
(9) the abstracts of audited accounting and audit statements of the past two years
(10) any litigation or arbitration involving the franchise operations in the past five years;
(11) the information on whether the franchisor and its legal representative engaged in major illegal operations
(12) any other information mandated by regulatory authorities within the Ministry of Commerce.
Article 23 The franchisor shall provide truthful, accurate, complete information to the franchisee. The franchisor shall not withhold relevant information or provide false information.
If material changes occur to information previously provided by the franchisor, the franchisor shall notify the franchisee of such material changes in a timely manner.
The franchisee may terminate the franchise contract if the franchisor withholds relevant information or provides false information.
Chapter 4 Legal Penalties
Article 24 A franchisor, who is unqualified under Section 2 of Article 7, yet conducts franchising operations, shall be subject to an ordered correction from commerce regulatory authorities, confiscation of profits, a monetary fine between 100,000 and 500,000 yuan, and a public reprimand.
Entities or individuals other than registered enterprises, who conducts franchising operations, shall be subject to an order from regulatory authority to cease illegal operations, confiscation of profits, and a monetary fine between 100,000 and 500,000 yuan.
Article 25 A franchisor, failing to register with appropriate commerce regulatory authorities pursuant to Article 8, shall be subject to an order from such regulatory authorities to register the franchise within a specified time and a monetary fine between 10,000 and 50,000 yuan; if the franchisor fails to register within the specified time, it shall be subject to a monetary fine between 50,000 and 100,000 yuan and a public reprimand.
Article 26 A franchisor in violation of Article 16 and Article 19 shall be subject to an ordered correction from commerce regulatory authorities, and may be issued a monetary fine less than 10,000 yuan; in case of a serious and egregious violation, the franchisor shall be subject to a monetary fine between 10,000 and 50,000 yuan and a public reprimand.
Article 27 A franchisor in violation of Section 2 of Article 17 shall be subject to an ordered correction from Administration of Industry and Commerce, a monetary fine between 30,000 and 100,000 yuan; in case of a serious and egregious violation, the franchisor shall be subject to a monetary fine between 100,000 and 300,000 yuan and a public reprimand; if a violation constitutes a crime, the franchisor shall be subject to criminal liability.
A franchisor engaging in misleading and fraudulent advertising shall be subject to penalties in accordance with the Advertising Law of China.
Article 28 A franchisor in violation of Article 21 and Article 22, reported by a franchisee and confirmed by commerce regulatory authorities, shall be subject to an ordered correction and a monetary fine between 10,000 and 50,000 yuan; in case of a serious and egregious violation, the franchisor shall be subject to a monetary fine of 50,000 and 100,000 yuan and a public reprimand.
Article 29 Criminal activities defrauding others’ money or property under the disguise of franchising shall subject the perpetrator to criminal liability; activities, not constituting a crime, shall subject an actor to penalties in accordance with the Law of Public Security and Punishment of China.
Those conducting pyramid sales under the disguise of franchising shall be subject to penalties in accordance with the Regulations Prohibiting Pyramid Schemes.
Article 30 Employees of commerce regulatory authorities engaging in abuse of authority, professional negligence and self-dealing shall be subject to criminal liability if such activities constitute a crime; if not a crime, such employees shall be subject to punishment in accordance with the law.
Chapter 5 Addendum
Article 31 Laws governing trademark and patent as well as administrative regulations shall apply to issues arising out of franchise operations concerning trademark licensing, patent licensing.
Article 32 Franchising organizations and associations are to, under the guidance of regulatory authorities within the Ministry of Commerce, formulate standards for franchising operations, strengthen professional self governance, and provide services to parties engaging in franchise operations.
Article 33 A franchisor conducting franchising operations before the Regulations goes into effect shall register the franchising with commerce regulatory authorities in accordance with the provisions herein within one year the from the date when this Regulations goes into effect; the franchisor failing to register within said exemption period shall be subject to penalties provided in Article 25.
The franchisor under the above section is exempt from Section 2 of Article 7.
Article 34 The Regulations shall go into effect on May 1, 2007.
Posted by Brad Luo at 8:44 AM