Commercial franchise

A. Commercial franchise

Article 284 of the Commercial Law 2005 stipulates that: Commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services on the following conditions:

The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors’ trademarks, trade names, business knows-how, business slogans, business logos, and advertisements.

Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities.

B. Conditions for traders granting commercial rights

Traders are allowed to grant commercial rights when the business system intended to be used for franchising has been in operation for at least 1 year.

C. Regulations on the registration of the commercial franchise

1. Commercial franchise registration is required in the following cases:

Before conducting commercial franchise, Vietnamese traders or foreign traders intending to franchise must register for franchising activities.

2. Commercial franchise registration is not required in the following cases:

(a) Domestic commercial franchise;

(b) Vietnam-to-Overseas commercial franchise.

However, in this case, the trader must report to the Department of Industry and Trade before conducting the commercial franchise.

C. Rights and obligations of parties in commercial franchise

1. Franchisors

(a) Pursuant to Article 286 of Commercial Law 2005, the rights of franchisor:

“Unless otherwise agreed, franchisors shall have the following rights:

  1. To receive franchise sums.
  2. To organize advertising for the commercial franchise system and the commercial franchise network.
  3. To conduct periodical or extraordinary inspections of activities of franchisees in order to ensure the uniformity of the commercial franchise system and the stability of quality of goods and services.”

(b) Pursuant to Article 287 of Commercial Law 2005, obligations of franchisors:

“Unless otherwise agreed, franchisors shall have the following obligations:

  1. To supply documents guiding the commercial franchise system to franchisees;
  2. To provide initial training and regular technical assistance to franchisees for managing activities in accordance with the commercial franchise system;
  3. To design and arrange location of sale of goods or provision of services at the expenses of franchisees;
  4. To guarantee the intellectual property rights to the objects stated in franchise contracts;
  5. To equally treat all franchisees in the commercial franchise system.”

2. Franchisees

(a) Pursuant to Article 288 of Commercial Law 2005, the rights of franchisees:

“Unless otherwise agreed, franchisees shall have the following rights:

  1. To request franchisors to provide fully technical assistance related to the commercial franchise system;
  2. To request franchisors to equally treat all franchisees in the commercial franchise system.”

(b) Pursuant to Article 289 of Commercial Law 2005, franchisees shall have the following obligations

“Unless otherwise agreed, franchisees shall have the following obligations:

  1. To pay franchise sums and other amounts under commercial franchise contracts;
  2. To invest sufficient facilities and financial resources, and human resources to take over business rights and know-how transferred by franchisors;
  3. To accept the franchisor’s control, supervision and guidance; comply with the requirements on design, arrangement of location of sales and provision of service of franchisors;
  4. To keep secret the franchised business know-how even after the expiration or termination of commercial franchise contracts;
  5. To stop using trademarks, trade names, business slogans, logos and other intellectual property rights (if any) or systems of franchisors upon the expiration or termination of commercial franchise contracts;
  6. To manage their activities in accordance with the commercial franchise system;
  7. Not to sub-franchise without permissions of franchisors.”

E. The scope of works of LMP Lawyers, the disadvantage if the client do it by themselves, the advantages if client is supported by LMP Lawyers

1. Scope of works

LMP Lawyers will perform the following tasks when appointed by the client to perform the work:

(a) Advising the client on legal issues related to commercial franchise;

(b) Consulting, negotiating, drafting franchise contracts.

(c) Providing a checklist of documents to be prepared, the number of documents to be prepared, the manner of preparing the documents to meet the legal requirements and the requirements of the licensing authority;

(d) On behalf of the client submitting the documents to the licensing authority;

(e) Monitoring the status of the application, promptly discussing with the processing specialist when there are additional adjustment requirements 

(f) Receiving results on behalf of the client and delivering the results to the client.

2. Risks that customers may incur when doing it themselves

Regarding the drafting and entering into contracts, for a variety of reasons, the drafting of contract conduct by client sometimes has certain shortcomings and is not legally strict, which may lead to risks that the contract is void or causes difficulties in the contract’s performance.

Regarding carrying out the procedure, in the process of providing services, we realize that customers may face the following risks when they do it themselves:

(a) Legal documents are not evident, refer to many places in the documents, this makes it difficult for the client to identify the legal issues that they are facing.

(b) Due to the lack of detailed guidance in the legal documents, when the client prepares their own documents, the documents are incomplete or inconsistent with the law. As a result, when they submit self-prepared documents to the licensing agency, the application is required to be adjusted and supplemented many times. This makes the client take a lot of time to process documents, thereby slowing down the implementation progress of the client’s business plans. 

(c) The client misidentifies the competent authority to receive the application.

(d) The client does not closely monitor the application processing situation, leading to the inability to promptly handle the adjustment and supplement of the dossier upon request from the licensing authority.

(e) The license result may be wrong in some information, but the customer does not detect it in time.

3. Advantages in the case clients are supported by LMP Lawyers

When clients are supported by LMP Lawyers, clients will receive the following advantages compared to implementing it by themselves:

(a) Saving a lot of time in the licensing process, clients only need to provide initial information and documents according to our detailed instructions, from then on, clients have almost gotten no extra time for the procedure.

(b) Eliminating the risks mentioned above, focus only time and human resources on business activities of the enterprise.

(c) Receiving enthusiastic advice and support from the professional staff of LMP Lawyers.

Note: The content presented above is for reference only. The content may no longer be relevant depending on the time and audience. For any detailed consultation requests, please contact LMP Lawyers.

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