Regulations on franchising in Vietnam

Franchising is a development strategy including marketing, distribution and sales. In which, the organization that owns the brand (franchiser) licenses an individual or business (the franchisee) the right to do business, based on intellectual property. Franchising’s goal is to help develop brand awareness and increase financial flows between the two parties. It is not difficult to find businesses using franchising in Vietnam and around the world. Many coffee shops, milk tea shops and restaurants are currently using this method to do business.

AZLAW will provide you in this article information and legal provisions related to franchise activities and franchise contracts.

What is a Franchise?

The franchise is a commercial activity whereby the franchisor permits and requires the franchisee to conduct the purchase and sale of goods and provide services under the determined conditions. A franchise contract is a contract that instructs an enterprise to use a product or an operating process that is an industrial property object and is being protected. Franchising involves the transfer of technology, trademarks or other intellectual property objects.

Classification of franchises

Franchising is a relatively flexible model, and any business type can be franchised. There are many types of franchises, which can be classified according to different factors, such as investment level, franchisor’s strategy, operations, marketing and relationship models, etc.

Based on the scope of the franchise, it can be classified into 4 main types of franchising:

Full business format franchise

Under this model, in addition to using the franchised mark, the franchisee has the right to own the entire system to operate the business, know-how in production/business technology and the right to manage products. /services (production, marketing, etc.). The franchisor will provide a plan with detailed procedures for almost every aspect of the business, providing training and support in the early stages in the long term.

Non-business format franchise

With this model, the franchisor only transfers certain elements of the business’s operations, such as providing the right to use the brand image or sharing a recipe or marketing model products/services.

Management franchise

The franchise model is more about the quality and experience of the managers/leaders than the industry experience. Essentially, a management franchise occurs when the franchisor provides the manager and operator of the business to the franchisee, in addition to transferring the brand and business model/formula. This form is especially suitable for service brands with high requirements for human resources, especially the hotel and restaurant industry.

Equity franchise

Equity Franchise means that the franchisor participates in the investment capital in a small proportion in the form of a joint venture to directly participate in the control of the system. The franchisor can participate in the Board of Directors of the company, although the contributed capital is only a small percentage.

Franchise Agreement

A franchise contract is a document recording the agreement of the parties when conducting commercial franchising activities.

Contract form

Article 285 of the Commercial Law stipulates: “A franchise contract must be made in writing or another form with equivalent legal validity”.

Accordingly, the mandatory form of a franchise contract is:

Text form;

Other forms of equivalent legal validity: fax, email, etc.

Note:

The franchise contract must be made in Vietnamese. In the case of franchising from Vietnam to abroad, the language of the franchise contract shall be agreed upon by the parties.

The content of the contract

1. A franchise contract usually includes the following contents:
2. Contents of commercial rights.
3. Rights and obligations of the franchisor.
4. Rights and obligations of the franchisee.
5. Pricing, recurring franchise fees and payment methods.
6. Term of the franchise contract.
7. The validity period of the contract.
8. The contract extension, termination and dispute resolution.

We noticed more some of the following franchise contract issues:

The franchisee has the right to sub-license the franchise to a third party (referred to as the sub-licensee) with the franchisor approval. The sub-franchise has the rights and obligations of the franchisee.

Before franchising, the franchisor must register with the Ministry of Trade.

Franchise companies in Vietnam

The franchise business has appeared in the world for a long time but has only grown stronger in Vietnam in recent years. And the beginning of that trend is the entry of big brands in the world into the Vietnamese market. Furthermore, many Vietnamese brands have also expanded the franchise business market not only in the country but also in many countries around the world.

Some franchise companies in Vietnam in the following areas:

• LOTTERIA – Fast food and restaurant sector
• HIGHLAND COFFEE – Coffee field
• Pho 24 – Culinary field
• PIZZA HUT – Fast food and restaurant sector
• Blue Exchange – Fashion field
• Trung Nguyen Coffee – Coffee field
• Tocotoco – Milk tea business
• Circle K – Supermarkets

Franchise procedures

Conditions for carrying out commercial franchising activities

Franchising activities are realized under the following conditions:

• Traders have the rights to the franchise when the business system has been in operation for at least one year.
• The purchase and sale of goods and provision of services shall be conducted following the manner of business organization prescribed by the franchisor and shall be associated with trademarks, trade names, business secrets, business slogans and symbols business and advertising images of the franchisor;
• The franchisor has the right to control and assist the franchisee in running the business.

Registration Profile

• An application for registration of commercial franchising (according to the form guided by the Ministry of Trade);
• An introduction to the franchise (according to the prescribed form);
• Written endorsements of:

• The legal status of the intended franchisor;
• Industrial property rights protection titles in Vietnam or abroad ( in case of transfer of the right to use industrial property objects granting protection titles)

If the above documents are presented in a foreign language, they must be translated into Vietnamese and certified by a notary agency in Vietnam or legalized by a diplomatic of Vietnam abroad.

Registration procedure

• Apply for registration of commercial franchising to the competent state agency.
• Within five working days after receiving complete and valid dossiers, the competent state agency shall register commercial franchising activities in the commercial franchising register and notify in writing copy the trader about registration.
• In case the dossier is incomplete or invalid, within 02 working days from the date of receipt of the dossier, the competent state agency must send a written notice to the intended franchisor to supplement, complete profile.
• The time limit specified in this Clause does not include the time the franchisor intends to amend and supplement the application file for registration of commercial franchising.
• After the expiration of the time limit specified in this Clause, if a competent state agency refuses to register, it must notify in writing the intended franchisor and clearly state the reasons therefore.

Above is AZLAW’s advice on franchising. If you have questions or need to use legal services, please don’t hesitate to contact us for guidance and timely support.

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