What is commercial franchising and how to carry out commercial franchising activities?
Dear lawyer, I have a question in the following issue, I would like to receive a lawyer’s advice! I sincerely thank you!
What is commercial franchising and how to carry out commercial franchising activities?
Reply to consultant:
Regarding the question you asked me, I would like to answer as follows:
1.What is franchise registration?
1.1. What is a franchise?
According to the provisions of Article 284 of the Commercial Law 2005, commercial franchising is a business activity whereby the franchisor permits and requires the franchisee to conduct the purchase and sale of goods and provision of services according to the terms and conditions specified in Clause 1 of this Article, subject to certain conditions.
Alternatively, franchising can be understood as a business activity performed between merchants, whereby the franchisor (who is the trader that grants the franchise, including the secondary franchisor in the relationship with a secondary franchisee) allows and requires the franchisee (who is the franchisee, including the secondary franchisee in relation to the secondary franchisor, to whom the franchisee secondary franchisor is understood as a trader who has the right to re-grant the commercial rights received from the original franchisor to the secondary franchisee) to conduct and perform the work of buying and selling goods and providing services corresponding to certain conditions as prescribed by law.
These conditions include:
Firstly, the purchase and sale of goods and provision of services by the franchisee must be conducted in the manner of a business organization prescribed by the franchisor and associated with the trademark, trade name, business secret of the franchisor’s business, business slogans, business logos, and advertisements of the franchisor.
That is, after the franchisee receives the franchisor’s permission through the franchise contract signed between the two parties, the franchisee will conduct and carry out the purchase and sale of goods or provide services on their own in accordance with the process, organization, and business activities prescribed by the franchisor. In connection with the purchase and sale of goods and provision of these services, the franchisee must also ensure that the goods sold or services provided bear the trademark, trade name, business secret, business slogans, business logos, as well as advertisements of the franchisor.
Secondly, the franchisor has the right to control and assist the franchisee in running the business.
After receiving the franchise, during the franchisee’s business operations, the franchisor will have complete control over the management of the business, ensuring the business process is properly organized and the business is regulated by the franchise. Additionally, when the franchisee encounters difficulties or obstacles in their business, the franchisor is also fully entitled to help the franchisee.
In general, when the franchisor has transferred its commercial rights to the franchisee, the franchisee will be the party that directly performs the purchase and sale of goods and provision of services. Although the franchisor does not directly perform the purchase and sale of goods or provide services, they still have the right to directly control and assist the franchisee in running the business to ensure that the franchisee operates in accordance with the business process set forth by the franchisor.
1.2. What is the registration of franchise activities?
According to the provisions of commercial law, specifically in Clause 1, Article 291 of the Commercial Law 2005, Clause 1, Article 17 of Decree No. 35/2006/ND-CP detailing the Commercial Law on commercial franchising, and clauses 1 and Section II of Circular 09/2006/TT-BMT guiding the registration of commercial franchising activities, Vietnamese or foreign traders who intend to franchise (including initial franchise and secondary franchise) must register their franchising operation with the competent authority in accordance with the law before conducting commercial franchising activities.
Thus, it can be understood that the registration of franchising activities means that the intended franchisor will have to carry out the procedures for registration of commercial franchising activities with the competent authority in accordance with the law to have the right to carry out franchising activities with franchisees. After the intended franchisor completes the procedures for franchise registration with the competent registrar and is entered by the competent registrar in the Register of Franchise Operations, the registration of franchise operation has been completed and the franchisor will be allowed to enter into franchise contracts with the franchisee.
1.3. Cases not required to register commercial franchising activities
According to the provisions of Clause 2, Article 3 of Decree No. 120/2011/ND-CP amending and supplementing administrative procedures in a number of Government Decrees detailing the Commercial Law, the following cases are not required to register for concessions of trade rights:
– Domestic franchising; and
– Franchising from Vietnam to abroad.
For the above cases, the prospective franchisor is not required to register the franchise with the competent registrar. However, the party intending to franchise must comply with the reporting regime to the Department of Industry and Trade. This is to help the Departments and Ministries to make statistics and grasp the status of franchising in the current market and manage the list of traders who are carrying out franchising activities.
- Composition of Application for Registration of Commercial Franchising
According to Point a, Clause 1, Article 18 of Decree 35/2006/ND-CP, Clause 3, Article 3 of Decree 120/2011/ND-CP, and Clause 1, Section I of Circular 09/2006/TT-BTM, the Ministry of Trade (now the Ministry of Industry and Trade) will be the agency that registers franchising activities for “franchisement from foreign countries into Vietnam, including franchising activities from Export Processing Zones, Non-Tax Zones, customs offices, or separate customs areas as prescribed by Vietnamese law into the Vietnamese territory.”
Corresponding to this activity, the application for registration of commercial franchising at the Ministry of Industry and Trade specified in Clause 2, Section II of Circular 09/2006/TT-BTM will include:
An application for registration of commercial franchising, made according to form MD-1 in Appendix II issued together with Circular 09/2006/TT-BTM;
An introduction to commercial franchising, made according to the form in Appendix III issued together with Circular 09/2006/TT-BTM;
A copy of the business registration certificate or equivalent document of the foreign trader, certified by the competent authority where the foreign trader is established;
A notarized copy of the industrial property protection title abroad in case there is a transfer of the right to use the industrial property objects that have been granted the protection title;
Papers proving the consent of the original franchisor to allow re-franchise in case the trader registering franchising is a secondary franchisor.
In addition to the commercial franchising registration application, a notarized copy of the business registration certificate or investment certificate, and the remaining papers in the franchise registration dossier, if possible, must be present in a foreign language. It must be translated into Vietnamese and legalized according to the provisions of Vietnamese law (according to Clause 4, Section II of Circular 09/2006/TT-BTM and Clause 4, Article 3 of Decree No. 120/2011/ND-CP).
A copy of a foreign trader’s business registration certificate or equivalent document expressed in a foreign language must be translated into Vietnamese and certified by a Vietnamese diplomatic mission in the foreign country, which will certify and carry out the consular legalization in accordance with the provisions of Vietnamese law.
3.Order and procedures for registration of commercial franchising
Pursuant to the provisions of Article 20 of Decree No. 35/2006/ND-CP and Clauses 5 and 6, Section II of Circular 09/2006/TT-BTM, the order and procedures for registration of commercial franchising are carried out as follows:
Step 1: Submit your application
The trader intending to franchise must prepare all the documents in the application for registration of commercial franchising as guided in Section 2 above.
Then, send the dossier to the State agency competent to register commercial franchising activities.
After receiving the application for registration of commercial franchising, the registration authority will write a receipt and hand it over to the trader registering the franchising.
Step 2. Follow up and supplement records (if any)
Within 02 working days from the date of receipt of the application, if the application is incomplete or invalid, the registration agency will notify the applicant in writing to request the supplement and completion of the application. At this time, the time limit for processing the dossier will be counted from the time when the trader registers the franchising operation and completes the dossier.
If it is unclear about the supplement of the dossier, the trader registering the commercial franchising operation has the right to request the registration authority to clearly explain the requirements to supplement and complete the dossier.
Step 3. Process the application and get the result
Within 05 working days from the date of receipt of complete and valid dossiers, the registration authority will register commercial franchising activities for traders in the Franchise Register and notify the trader in writing.
In case the registration authority refuses to register commercial franchising, within 05 working days from the date of receipt of complete and valid dossiers, the registration agency will notify the eligible traders in writing and state the reason for the refusal.
-Commercial Law 2005.
-Decree 35/2006/ND-CP dated March 31, 2006 of the Government detailing the Commercial Law on commercial franchising activities.
-Circular 09/2006/TT-BMT dated May 25, 2006 of the Ministry of Trade guiding the registration of commercial franchising activities.
-Decree 120/2011/ND-CP dated December 16, 2011 of the Government amending and supplementing administrative procedures in a number of Government Decrees detailing the Commercial Law.