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Procedures for Registering Franchising Activities

(4) Guarantee intellectual property rights for the subject matter stated in the franchise contract;

(5) Equal treatment of franchisees in the NQTM system;

(6) Other obligations as agreed in the contract but not contrary to the law.

1.2.2. For franchisees

Franchisees have the following rights when participating in the NQTM system:

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(1) The right to know information about the franchise system (UFOC documents), model contracts before signing the franchise contract;

(2) Request technical assistance from the franchisor;

Procedures for Registering Franchising Activities

(3) Require the franchisor to treat equally;

(4) Sub-franchise if permitted by the franchisor according to the signed NQTM contract;

(5) Unilaterally terminate the franchise contract if the franchisor violates the provisions on unilateral termination of the contract;

(6) Other rights as agreed in the contract but not contrary to the law. Obligations of the franchisee:

(1) Pay franchise fees and other fees as agreed in the contract;

(2) Invest in facilities, human resources and finance to receive the franchise;

(3) Accept inspection and supervision by the franchisor; comply with regulations on design and arrangement;

(4) Keep the franchisor's business secrets confidential even after the contract is terminated;

(5) Terminate the franchisor's use of the franchisor's trademark upon termination of the contract;

(6) Operate in accordance with the franchise model specified by the franchisor;

(7) Sub-franchising is not allowed without the permission of the franchisor;

(8) Other obligations under the contract but not contrary to the law.


1.3. Procedures for registering Franchising activities

NQTM registration agency:

The Ministry of Trade (now the Ministry of Industry and Trade) is the agency that registers franchise activities in the case of franchises from abroad to Vietnam or franchises from Vietnam to abroad.

The Department of Trade, Department of Trade and Tourism (now the Department of Industry and Trade) of the province or centrally-run city where the trader intends to franchise registers for business shall carry out registration for domestic franchise activities.

Procedures for registering Franchising activities:

Before conducting franchise activities, the trader intending to franchise, including the initial franchisor and the secondary franchisor, must register the franchise activities with the competent authority (Ministry of Industry and Trade or Department of Industry and Trade depending on each specific case).

Registration documents for NQTM activities include:

(1) Application for registration of NQTM activities according to the form (Form MD-1 or MD-2 in Appendix 2 issued with Circular 09/2006/TT-BTM);

(2) Sample introduction to NQTM;

(3) Notarized copy of Business Registration Certificate or Investment Certificate;

(4) Notarized copy of industrial property protection certificate in Vietnam or abroad;

(5) Certificate of approval of the original franchisor's permission to re-franchise in case the franchisee is a secondary franchisor.

1.4. Regulations on registration fees for franchising activities

The Ministry of Finance issued Decision No. 106/2008/QD-BTC dated November 17, 2008, regulating the collection rates, collection, payment, management and use of fees for registration of commercial franchising activities.

Accordingly, the fee for registering franchise activities when issuing a Notice of approval of franchise conditions is as follows:

(1) Foreign traders franchising in Vietnam:

- New notification is: 16,500,000 VND/paper;

- Amendment and supplement of notice: 6,000,000 VND/paper;

- Re-issuance of notice: 500,000 VND/paper.

(2) Vietnamese traders franchise abroad

- New notification is: 4,000,000 VND/paper;

- Amendment, supplement and re-issuance of notice: 500,000 VND/paper.

(3) Domestic franchise traders

- New notification is: 4,000,000 VND/paper;

- Amendment, supplement and re-issuance of notice: 500,000 VND/paper.

1.5. Violations of the law on Franchising in Vietnam

According to Article 24 of Decree 35/2006/ND-CP, the following cases violate the law on commercial franchise:

- NQTM for prohibited goods and services;

- Violation of the obligation to provide information in NQTM activities;

- The information in the NQTM Introduction contains dishonest content;

- Violation of regulations on registration of NQTM activities;

- Violation of regulations on notification in NQTM activities;

- Failure to pay taxes as prescribed by law but not to the extent of criminal prosecution;

- Failure to comply with requests of competent state agencies when conducting inspections;

- Violating other provisions of Decree 35/2006/ND-CP.

2. Advantages and initial results in implementing legal documentsNQTM in Vietnam

First of all, it must be mentioned that the 2005 Vietnamese Commercial Law has devoted a whole section to providing regulations governing commercial activities, this is a difference.

different and more progressive than the 1997 Commercial Law, showing that Vietnam is implementing its commitments on opening the distribution market including this activity.

Second, Decree 35/2006/ND-CP and Circular 09/2006/TT-BTM have specified the conditions for conducting franchising activities, the order and procedures for registering franchising activities. The Decree guides the provision of information in franchising activities for enterprises, creating a legal basis for forming a franchising system and protecting the legitimate rights and interests of franchisors, franchisees and consumers.

Most recently, the Ministry of Finance issued Decision 106/2008/QD-BTC to clarify the calculation and collection of franchise fees, avoiding unnecessary inconvenience and damage to businesses.

3. Legal issues related to Franchising

3.1. The law is not close to reality and lacks rigor.

Franchising activities should only be officially regulated by the Commercial Law and specialized legal documents. However, in reality, franchising is still considered a form of technology transfer activity and therefore, must be subject to additional regulations from the Civil Code, the Intellectual Property Law and the Technology Transfer Law. These laws are not closely connected to each other, so overlapping regulations in franchising are inevitable. The Civil Code and the Intellectual Property Law consider franchising a form of technology transfer and therefore, the subject of technology transfer is considered to be granted a business privilege license. Meanwhile, the Commercial Law and Decree 35/2006/ND-CP stipulate that franchising is a commercial activity, and this activity may or may not include technology transfer.

Article 5 of Decree 35/2006/ND-CP stipulates that the business system intending to franchise must operate in this manner for at least one year in Vietnam. This regulation aims to protect franchise buyers, helping them avoid being deceived by products that do not have enough brand recognition and legal status (not yet granted a business license, investment license, or registered industrial property rights) on the market. However, this required time of one year may be too long for some simple business lines, thereby unintentionally depriving them of franchise opportunities.

The transfer of business secrets in NQTM is also a difficult thing for brand owners. Decree 11/2005/ND-CP guiding the implementation of regulations on technology transfer, in which the concept of “licensing of business privileges” (NQTM) is defined: “The transferee uses the trade name, trademark and know-how of the transferor to conduct business activities in the commercial field…”. In fact, NQTM is not the “buying or selling” of a brand or business formula, but only “renting” from the brand owner for a certain period of time in the contract, from 2-3 years or 5-10 years. Therefore, the brand owner can only collect NQTM fees, not royalties.

The decrees and circulars issued to legalize franchising activities are still not strict, leading to many difficulties in state management of this activity. Article 5, Decree 35/2006/ND-CP only stipulates that the secondary franchisor “must operate in the form of franchising for at least one year in Vietnam” if receiving the initial franchise from a foreign country. But if the initial franchisor is Vietnamese, does the secondary franchisor need to apply the above conditions? Circular 09/2006/TT-BTM stipulates that the construction of the NQTM introduction document (Uniform Franchise Offering Circular, providing information about the NQTM party) must publicly disclose the details of the number and status of the franchise contract. Does this interfere too deeply with the business secrets of the enterprise? Then there is the requirement to provide audited financial statements. In principle, this requirement is consistent with international law on NQTM. However, most Vietnamese enterprises are currently small and medium-sized, not familiar with annual audits (partly due to the high cost of audits). Will they be denied registration for NQTM activities if they do not meet this requirement? In addition, there are currently no specific regulations on the mechanism for complaints and handling of complaints in case of refusal to register for NQTM activities, and there are no regulations on administrative sanctions for acts of "breaking the rules" in NQTM activities.

3.2. Regarding the registration procedure for Franchising activities

According to Article 291 of the Commercial Law 2005, Articles 17 and 18 of Decree 35/2006/ND-CP, any enterprise before conducting commercial activities must perform

Carry out the procedure for registering franchise activities at the Ministry of Trade or the Department of Trade (now the Ministry/Department of Industry and Trade). The dossier for registering franchise activities includes: Application for registration, Introduction to franchise activities drafted by the enterprise according to the form and other documents to confirm the legal status of the intended franchisor, intellectual property rights of the subjects related to the franchise activities... as prescribed by the Ministry of Trade in Section II.1 of Circular 09/2006/TT-BTM. The Ministry of Industry and Trade or the Department of Industry and Trade is the competent authority to review and appraise the dossier for registering franchise activities, the conditions for franchising (Article 5 of Decree 35) to decide whether to approve or not to approve the registration of franchise activities of the enterprise. Because there are still no specific binding sanctions for cases of franchise registration refusal, in reality, businesses that are deemed ineligible for franchising can still continue to franchise by circumventing the law by signing agency contracts with partners, including agreements allowing partners to use their brand and organize their business according to their operating methods.

3.3. Issues of building and providing the Introduction to NQTM

In principle, requiring a prospective franchisee to develop a Franchise Offering Circular is completely in line with the legal provisions on the franchisor's obligation to provide information. The franchisor's Franchise Offering Circular is essentially an important document, also known as the UFOC (Uniform Franchise Offering Circular), which the franchisor must provide to the prospective franchisee for review before signing the franchise contract. Therefore, the Franchise Offering Circular must fully, honestly and accurately present all information about the franchisor, the franchise system and basic issues related to the signing of the franchise contract. In some countries such as the United States, the development and provision of the UFOC document is mandatory by law, this document always ensures two basic functions: providing accurate information related to the content of the franchise; promoting the franchisor. In Vietnam, the Ministry of Trade also issued a sample NQTM Introduction Form attached to Circular 09/2006/TT-BTM, with quite detailed content including 2 parts and 13 items. However, the sample Introduction Form is drafted somewhat rigidly, the required information seems to mainly serve statistical and management activities.

state, without taking into account the promotional element of the Intended Franchisor. In addition, some information content is divided into unreasonable, confusing topics or some requirements may be unnecessary, specifically as follows:

The titles of Section I Part A and Section I Part B overlap. According to the stated content, Section I Part A aims to provide a general introduction to the legal status and business functions of the Franchisor, Section I Part B provides basic information about the franchisor's franchise business organization. Therefore, the title of Section I Part A should be revised to "Introduction to the legal status of the Franchisor", and the title of Section I Part B to "Information about the organization and operations of the Franchisor".

Point 2, Section V, Part B, talks about “the ability to allow the Franchisee to modify the provisions of the franchise business system”. This is essentially the Franchisee’s right as stipulated by the Franchisor, but is classified as a group of Franchisee’s obligations .

Points 3, 4, 5, 6, 7, 8 of Section IX Part B require detailed disclosure of the number and status of the signing, implementation, renewal, and termination of franchise contracts by the Franchisor. It seems that these requirements interfere too deeply with the business secrets of the Franchisor, and may pose risks to the Franchisor if the prospective franchisee does not sign the franchise contract. Here, the Franchisor only needs to provide information on the number of business establishments in the franchise system that are operating or have terminated within the last 3 years. In cases where a contract has been signed but has not yet been implemented, it is sufficient to state a specific reason.

Section X Part B requires the Franchisor to provide audited financial statements for the most recent year. Providing financial statements is reasonable, but is the requirement for an audit really appropriate to the actual situation in Vietnam? In the United States, only a few states require the Franchisor's financial statements to be audited. Currently, most Vietnamese enterprises are small and medium-sized enterprises, most of which are not familiar with auditing, so it is only appropriate to request a copy of the Financial Statement and tax settlement that has been audited and confirmed by the tax authority.

Section XI Part B entitled “Rewards, recognition to be received or required participation by the organization” is completely inconsistent with the content of the information expressing the Franchisee's commitment to the accuracy and truthfulness of the NQTM Introduction.

3.4. Conflicting and overlapping provisions between related legal documents

The concept of Franchising in the 2005 Civil Code is understood as “licensing of business privileges”, and is classified into the group of technology transfer subjects specified in Article 755 of the Code. However, according to Article 7 of the 2006 Law on Technology Transfer (effective from July 1, 2007), licensing of business privileges is not within the scope of technology transfer subjects. This is a serious contradiction between the Law on Technology Transfer and the Civil Code.

On the other hand, according to the provisions of Article 10 of Decree 35/2006/ND-CP, if the transfer involves the transfer of the right to use industrial property objects, the transfer can be made into a separate part of the franchise contract and is subject to the regulation of the law on industrial property. According to the Law on Intellectual Property 2005, the transfer of the right to use industrial property rights must be carried out in the form of a contract for the use of industrial property objects (Clause 2, Article 141 of the Law on Intellectual Property). Thus, the above provisions of Decree 35 are not in accordance with the law, and at the same time, the Law on Commerce 2005 does not have any provisions to reasonably link with the Law on Intellectual Property 2005 and the Law on Technology Transfer 2006, thus leading to a situation of "stepping on each other's toes" between relevant legal documents.

In addition, regarding the handling of violations in NQTM activities, Article 24 of Decree 35/2006/ND-CP lists specific violations and stipulates that the handling is carried out by administrative sanctions. However, the Government has not yet issued a decree on administrative sanctions.

Chapter II Summary:

The content of the entire Chapter 2 provides an overview of the NQTM activities in the world and specifically the implementation situation in Vietnam. NQTM was born a long time ago and is increasingly developing, bringing in large revenues for countries in general and businesses in particular. Through the analysis of some typical NQTM businesses in Vietnam such as KFC Vietnam, Trung Nguyen Coffee, Pho 24, it has clarified how

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