An Law Viet Nam Company Limited

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An Law Viet Nam Company Limited
Contract Consulting

Consult, draft franchise commercial contract

The business chain model (especially chain stores providing food services such as coffee, milk tea, ice cream…) is significantly developing. Normally, the investors will sign a franchise contract with the brand owner to invest and operate a store in the system, with trademarks, trade names, and business secrets, business slogans, business symbols, advertising as well as the general operating method of the system.

According to Article 285 of the 2005 Commercial Law, the franchise contract must be made in writing (or in another form with equivalent legal value, such as an electronic contract).

The business system used for franchising has been in operation for at least one year.

It is also important to note that, before carrying out franchising activities, the party intending to franchise (brand owner) will have to register franchise activities with the Ministry of Industry and Trade (as prescribed in Decision No. Decision 35/2006/ND-CP Guiding the Commercial Law on commercial franchising activities).

Relevant legal documents

  1. Commercial Law 2005
  2. Decision 35/2006/ND-CP Guiding the Commercial Law on commercial franchising activities.
  3. Decision 08/2018/ND-CP on amending the Decision related to business investment conditions.
  4. Decision 120/2011/ND-CP amending administrative procedures in the Decision guiding the Commercial Law
  5. Circular 09/2006/TT-BTM guiding the registration of commercial franchising activities.

Contents Required in Franchise Agreement

  1. Information of the parties:
    • Full names (of individuals), organization names (including information of the authorized representative and power of attorney).
    • The ID number or tax/business registration number.
    • Contact details for each party (address, phone number, email, website).
    • Bank account information for payment transfers.
    • Power of attorney details (if applicable).
  2. Object of the franchise contract: Specific business activities such as:
    • The right to use the “An Luật” trademark as the certificate of trademark registration number……… for branding on store signage, products, invoices, transaction documents, and other business materials of the franchisee.
    • The right to use the design of product A/B/C (attached with images or specific samples such as seating, uniforms, cups, packaging, store layout, etc.).
    • Use of logos, symbols, slogans, banners, advertisements of the franchisor as ……
    • Utilization of formulas, operational methods, business directions (referred to as business secrets) for operating the franchise store.
  3. Information about scope of franchising activities:
    • Geographical scope: within the territory of Vietnam or franchising rights in foreign countries (subject to compliance with each country’s regulations).
    • Franchise form: exclusive or not; if it is exclusive, which area the franchisee could occur in? (Within a province, region, etc.).
    • If it is exclusive, the restrictions on the distance between franchise stores in the same area must be caution.
  4. Franchise Fees: There are 2 kind of fee which are initial franchise fee (a fixed amount) and periodic fees (monthly/quarterly) either fixed or based on revenue. Furthermore, it must be clear about payment methods (cash or bank transfer) and payment deadlines for each period.
  5. Rights and obligations of the parties: For the franchisor, There will usually be regulations on brand ownership, the authority to inspect the system, the entitlement to receive franchise fees, and the right to modify system operating standards. Additionally, there’s an obligation to train the franchisee’s staff and provide guidance to ensure the proper operation of the store according to system standards. 
    For the franchisee, there is usually the right to request training, guidance, and the use of franchised elements (trademarks, logos, slogans, formulas, etc.). They also bear the obligation to pay franchise fees, respect the franchisor’s property, and adhere to the system’s standards.
    Additional clauses related to the rights and obligations of each party may vary based on the franchise system.
  6. Other general regulations such as: Other common clauses encompass penalty and compensation for contract breaches, conditions for temporary suspension or termination of the contract, dispute resolution mechanisms, and the validity of the contract.

Franchising is a complex activity involving technical and legal aspects. Therefore, both the franchisor and the franchisee should be cautious before entering into a franchise agreement. It is advisable for both parties to incorporate a confidentiality agreement to ensure the safety of business secrets exchanged during the franchising process.

For any inquiries or concerns related to franchise agreements, feel free to contact An Luat Vietnam for support and consultation.