Measures for the Administration of Information Disclosure in Connection with Commercial Franchising (Revised)

(Promulgated by the Ministry of Commerce on February 23 2012 and effective as of April 1 2012.)

Order of Mofcom [2012] No.2

Article 1: These Measures have been formulated pursuant to the Regulations for the Administration of Commercial Franchising (the Regulations) in order to safeguard the lawful rights and interests of franchisors and franchisees.

Article 2: These Measures shall apply to commercial franchising activities conducted in the People's Republic of China.

Article 3: For the purposes of these Measures, the term “affiliate” means the parent of a franchisor or its natural person shareholder, subsidiaries in which the franchisor directly or indirectly holds all or a majority of the equity and companies, together with the franchisor, whose equity is all or in the majority owned directly or indirectly by one owner.

Article 4: At least 30 days before the date of entering into a commercial franchise contract, the franchisor shall, in accordance with the Regulations, disclose to the franchisee in writing the information set forth in Article 5 hereof, unless the franchisor and the franchisee are renewing a contract on terms identical to that of their existing franchise contract.

Article 5: The information disclosed by a franchisor shall include the following:

(1) basic particulars of the franchisor and the franchise activities:

(a) the franchisor's name, correspondence address, contact information, legal representative, general manager, registered capital amount, scope of business and the number, addresses and contact telephones of existing directly operated stores;

(b) an overview of the commercial franchising activities engaged in by the franchisor;

(c) the basic particulars placed on the record by the franchisor;

(d) if products or services are to be provided to the franchisee by an affiliate of the franchisor, the basic particulars of such affiliate; and

(e) details of any bankruptcy of, or filing for bankruptcy by, the franchisor or its affiliate during the last two years;

(2) basic information on the business resources owned by the franchisor:

(a) a written explanation of the registered trademarks, enterprise logos, patents, proprietary technology, business model and other business resources;

(b) if the owner of the business resources is an affiliate of the franchisor, it shall disclose the basic particulars of such affiliate and the licensing details, and additionally explain how the franchise system will be handled in the event of the suspension or early termination of the licensing contract with the affiliate; and

(c) details of lawsuits or arbitration procedures relating to the registered trademarks, enterprise logos, patents, proprietary technology or other such franchise business-related resources of the franchisor (or its affiliate);

(3) basic information on the franchise fees:

(a) the types, amounts and rates of, and payment method for, the fees charged by the franchisor or on behalf of a third party; if the same cannot be disclosed, the reason therefor shall be given; if the fee rates vary, the highest and lowest rates shall be disclosed and the reasons for such variance shall be given;

(b) charging of a deposit, and the conditions for, and the time and method of, refunding the same;

(c) if the franchisee is required to pay fees before the franchise contract is entered into, the purpose of such fees, and the conditions for, and method of, refunding the same;

(4) details, such as the price of and conditions under which products, services and equipment are provided to the franchisee:

(a) whether the franchisee is required to purchase products, services or equipment from the franchisor (or an affiliate thereof) and the relevant prices, conditions, etc.;

(b) whether the franchisee is required to purchase products, services or equipment from suppliers designated (or approved) by the franchisor; and

(c) whether the franchisee can opt for other suppliers and, if so, the criteria that such suppliers are required to satisfy;

(5) details of the continuing services to be provided to the franchisee:

(a) the specifics and method of provision of, and implementation plan for, business training, including the training venue, method and period; and

(b) the specifics, the method of provision and the plan for the implementation of the technical support, including the description and types of business resources and the types of products, facilities and equipment;

(6) the method and details of the guidance and monitoring of the franchisee's business activities:

(a) the specifics, the method of provision and the plan for the implementation of business guidance, including site selection, trade dress, store management, advertising, promotion and product placement;

(b) the method and details of monitoring, the obligations the franchisee is required to perform and liability for failure to perform such obligations; and

(c) the division of responsibilities between the franchisor and franchisee for consumer complaints and damages;

(7) details of the investment budget for franchise outlets:

(a) the investment budget may include the following charges and expenses: the franchise fee, training fees, real property and fitting out expenses, expenses for the purchase of equipment, office supplies, furniture, etc., initial inventory, water, electricity and gas charges, expenses for obtaining licences and other government approvals and startup working capital; and

(b) the source of the information for and the basis for estimating the foregoing expenses;

(8) relevant information on franchisees in China:

(a) the number, geographical distribution and scope of authorisation of current and projected franchisees and whether they have exclusive territories (if they do, the forecast specific boundaries thereof shall be stated); and

(b) the business positions of existing franchisees, including the franchisees' actual investment amounts, average sales volumes, costs, gross profits and net profits; additionally, an explanation of the source of such information shall be given;

(9) abstracts of the franchisor's financial accounting reports and audit reports for the most recent two years audited by an accounting firm or auditing firm;

(10) details of lawsuits and arbitration proceedings relating to the franchise in which the franchisor was involved during the most recent five years, including the causes of action, the claims, jurisdiction and outcomes;

(11) details of the record of major illegal operations by the franchisor and its legal representative:

(a) fines of not less than Rmb300,000 imposed by the relevant administrative law enforcement departments; and

(b) criminal prosecution; and

(12) the franchise contract:

(a) a sample of the franchise contract; and

(b) if the franchisor requires the franchisee to execute other contracts relating to the franchise with it (or its affiliate(s)), samples of such contracts shall also be provided.

Article 6: The franchisor may not practise deception or attempt to mislead in its promotional and publicity activities, and the advertisements that it releases may not publicise the returns derived by any one franchisee in engaging in the commercial franchise activities.

Article 7: Before it discloses information to a franchisee, the franchisor shall have the right to require the franchisee to execute a confidentiality agreement.

A franchisee may not disclose or improperly use trade secrets to which it was privy in the course of concluding a contract, regardless of whether the franchise contract is formed.

After a franchise contract has terminated, the franchisee shall bear an obligation of confidentiality in respect of the franchisor's trade secrets to which it was privy as a result of the contractual relationship, even if it has not entered into a post-contract-termination confidentiality agreement.

If a franchisee violates either of the two preceding paragraphs, by disclosing or improperly using trade secrets, thereby causing the franchisor or a third party to incur a loss, it shall be liable for the attendant damages.

Article 8: Once the franchisor has disclosed information to the franchisee, the franchisee shall issue to the franchisor a written acknowledgement (in duplicate) in respect of the information it obtained, which the franchisee shall sign. One copy shall be retained by the franchisee and one copy by the franchisor.

Article 9: If a franchisor fails to disclose information that would affect the performance of the franchise contract, making it impossible to realise the objectives of the contract, or discloses false information, the franchisee may terminate the franchise contract.

Article 10: If a franchisor violates relevant provisions hereof, the franchisee shall have the right to report the same to the department in charge of commerce. If the violation is ascertained to be true after an investigation, the department in charge of commerce shall impose penalties in accordance with Articles 26, 27 or 28 of the Regulations, respectively.

Article 11: The Ministry of Commerce of the People's Republic of China is in charge of interpreting these Measures.

Article 12: These Measures shall be effective as of April 1 2012. The former Measures for the Administration of Information Disclosure in Connection with Commercial Franchising (Order of Mofcom [2007] No.16) shall be repealed simultaneously.