Franchising Procedures Clarify and Disappoint

February 28, 2005 | BY

clpstaff &clp articles

After many years of anticipation and false starts, the PRC51s first comprehensive franchising legislation, the Administration of Commercial Franchising Procedures, was finally issued by the Ministry of Commerce (MOFCOM) with effect from February 1 2005.1

 By Neal Stender & Yan Zeng, Coudert Brothers LLP, Hong Kong, Beijing & Shanghai

Disappointingly, franchisors in the PRC now face tighter government regulation, more upfront investment, slower payback periods, increased disclosure duties and expanded liability.  On the bright side, many issues are clarified, and standard form documents2 developed in the US and certain other jurisdictions will be usable in the PRC with relatively minor adjustments, and translation of key documents.  No mandatory contract terms are specified by the Procedures, only various terms expected to be included “in general”, although a number of liabilities are imposed regardless of the contract terms.

The Procedures will be of particular interest to the large number of foreign3 franchisors that have shown increasing interest in the PRC, but the majority of the Procedures apply equally to domestic franchisors.

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