Table of Contents
Chapter I: General Provisions
Article 1 These Regulations are formulated for the purposes of regulating commercial franchise activities, promoting the sound development of commercial franchising, and safeguarding the lawful rights and interests of the parties to franchise transactions.
Article 2 Commercial franchise activities within the territory of the People’s Republic of China shall be governed by these Regulations. For the purposes of these Regulations, “commercial franchise” (hereinafter referred to as “franchise”) means a business operation model in which an enterprise (hereinafter referred to as the “franchisor”) that owns registered trademarks, enterprise logos, patents, proprietary technologies, and other business resources licenses its business resources to another operator (hereinafter referred to as the “franchisee”) through a contract, and the franchisee conducts business operations under a unified business model in accordance with the contract and pays franchise fees to the franchisor. No entity or individual other than an enterprise shall engage in franchise activities as a franchisor.
Article 3 In engaging in franchise activities, the franchisor and the franchisee shall abide by the principles of voluntariness, fairness, and good faith. Franchise activities shall not harm the public interest.
Article 4 The competent department for commerce under the State Council shall be responsible for the supervision and administration of franchise activities nationwide. The competent departments for commerce of the people’s governments of provinces, autonomous regions, and municipalities directly under the Central Government and the competent departments for commerce of the people’s governments at the districted city level shall be responsible for the supervision and administration of franchise activities within their respective administrative areas in accordance with the provisions of these Regulations.
Article 5 The state shall encourage and support enterprises to use their advantageous business resources such as trademarks, trade names, and proprietary technologies to develop franchise operations and promote the development of the circulation industry and service industry.
Chapter II: Franchise Qualifications
Article 6 A franchisor shall meet the following conditions: (1) being an enterprise established in accordance with law; (2) owning registered trademarks, enterprise logos, patents, proprietary technologies, and other business resources; (3) having the capability to provide long-term business guidance and training services to the franchisee; (4) having at least two directly operated stores and having operated them for more than one year; (5) having a mature business model and the capability to provide the franchisee with ongoing business guidance, technical support, business training, and other services; and (6) other conditions prescribed by laws and administrative regulations.
Article 7 The franchise resources of the franchisor shall include registered trademarks, enterprise logos, patents, proprietary technologies, trade secrets, business models, and other elements. The franchisor shall have ownership or lawful use rights to the aforesaid franchise resources.
Article 8 A franchisor shall, within 15 days from the date of first entering into a franchise contract, file with the competent department for commerce in accordance with the provisions of these Regulations. The filing matters for a franchisor shall include: (1) the basic information of the franchisor; (2) the distribution of the franchised outlets within the territory of China; (3) the business resources such as registered trademarks, enterprise logos, patents, and proprietary technologies owned by the franchisor; and (4) other matters prescribed by the competent department for commerce under the State Council.
Article 9 Where a franchisor applying for filing falls under any of the circumstances specified in item (2) of Article 8 of these Regulations, the competent department for commerce may, after examination, find that the franchisor does not meet the conditions prescribed in these Regulations and order it to make corrections, or directly revoke the filing.
Chapter III: Franchise Contracts
Article 10 A franchisor and a franchisee shall conclude a franchise contract in writing. A franchise contract shall include the following main contents: (1) the basic information of the franchisor and the franchisee; (2) the content and term of the franchise; (3) the type, amount, and method of payment of the franchise fee; (4) the specific content and method of provision of business guidance, technical support, business training, and other services; (5) the quality, standard requirements, and guarantee measures for products or services; (6) the advertising and promotion of products or services; (7) the protection of consumer rights and interests and the assumption of compensation liability in franchise operations; (8) the modification, rescission, and termination of the franchise contract; (9) liability for breach of contract; (10) the method for dispute resolution; and (11) other matters agreed upon by both parties.
Article 11 The franchise term agreed upon by the franchisor and the franchisee in the franchise contract shall be not less than three years, unless otherwise agreed by the franchisee. Where the franchise contract expires and the franchisee applies for renewal of the franchise contract, the franchisor shall not refuse without justifiable reasons.
Article 12 A franchisor shall provide the franchisee with an operation manual in accordance with the franchise contract and provide the franchisee with business guidance, technical support, business training, and other services in accordance with the agreed content and method.
Article 13 The products or services sold or provided by a franchisee shall meet the quality and standard requirements stipulated in the franchise contract. A franchisee shall not sub-franchise without the consent of the franchisor. Without the consent of the franchisor, a franchisee shall not transfer the franchise to others. A franchisee shall keep confidential the trade secrets of the franchisor.
Article 14 A franchisor shall publicize the franchise fees charged to franchisees. The charging items and standards of franchise fees shall be fair and reasonable. The content and method of collection of franchise fees shall be agreed upon in the franchise contract.
Chapter IV: Information Disclosure
Article 15 A franchisor shall establish and implement a complete information disclosure system. A franchisor shall, at least 30 days before entering into a franchise contract, provide the franchisee with information such as the franchisor’s name, domicile, legal representative, registered capital, business scope, and the basic information on engaging in franchise activities by written form, and shall provide the franchise contract text.
Article 16 The information disclosed by a franchisor to a franchisee shall be true, accurate, and complete, and shall not conceal relevant information or provide false information. A franchisor shall disclose to a franchisee the basic information on its business resources such as registered trademarks, enterprise logos, patents, and proprietary technologies.
Article 17 A franchisor shall provide a franchisee with the following information: (1) the basic information of the franchisor; (2) the basic information on the franchisor’s business resources such as registered trademarks, enterprise logos, patents, proprietary technologies, and business models; (3) the basic information on the franchise fees; (4) the prices and conditions for providing products, services, or equipment to the franchisee; (5) the continuous provision of business guidance, technical support, business training, and other services to the franchisee; (6) the guidance and supervision of the franchisee’s business activities; (7) a summary of the franchised outlets; (8) the financial accounting report of the franchisor for the most recent two years audited by an accounting firm and the summary of its audit report; (9) litigation or arbitration information relating to franchise activities in the most recent five years; (10) whether the legal representative of the franchisor has a record of major illegal business operations; and (11) other information prescribed by the competent department for commerce under the State Council.
Article 18 Where a franchisor conceals relevant information or provides false information, the franchisee may rescind the franchise contract. The right of rescission under the preceding paragraph shall be exercised within one year from the date the franchisee knew or should have known of the cause for rescission.
Chapter V: Supervision and Administration
Article 19 The competent department for commerce shall establish and improve the filing management system for franchisors, strengthen the supervision and administration of franchise activities, and investigate and handle illegal acts in franchise activities in accordance with law.
Article 20 The competent department for commerce shall establish a credit file system for franchise activities, record the violations of franchise laws and regulations by franchisors and franchisees, and publicize such information to the public.
Article 21 Any entity or individual shall have the right to report illegal acts in franchise activities to the competent department for commerce. The competent department for commerce shall handle the report in a timely manner and keep confidential the identity of the whistleblower.
Article 22 The competent department for commerce may, when performing its supervision and inspection duties, take the following measures: (1) enter the business premises of the franchisor or franchisee for inspection; (2) require the person under inspection to provide relevant documents and materials; (3) inquire of the person under inspection about matters relating to franchise activities; and (4) order the person under inspection to cease the illegal act.
Chapter VI: Legal Liability
Article 23 Where a franchisor fails to file with the competent department for commerce in accordance with the provisions of these Regulations, the competent department for commerce shall order it to make corrections within a prescribed time limit and impose a fine of not less than RMB 10,000 and not more than RMB 50,000; where it fails to do so within the prescribed time limit, a fine of not less than RMB 50,000 and not more than RMB 100,000 shall be imposed, and the matter shall be announced.
Article 24 Where a franchisor conceals relevant information or provides false information in violation of the provisions of these Regulations, the competent department for commerce shall order it to make corrections and impose a fine of not less than RMB 10,000 and not more than RMB 50,000; where the circumstances are serious, a fine of not less than RMB 50,000 and not more than RMB 100,000 shall be imposed, and the matter shall be announced.
Article 25 Where a franchisor provides false filing materials when filing with the competent department for commerce, the competent department for commerce shall order it to make corrections and impose a fine of not less than RMB 10,000 and not more than RMB 50,000; where the circumstances are serious, a fine of not less than RMB 50,000 and not more than RMB 100,000 shall be imposed, and the matter shall be announced.
Article 26 Where a franchisor engages in false advertising in franchise activities, it shall be penalized in accordance with the Advertising Law of the People’s Republic of China and other relevant laws and administrative regulations.
Article 27 Where the provisions of these Regulations are violated and a crime is constituted, criminal liability shall be pursued in accordance with law.
Chapter VII: Supplementary Provisions
Article 28 Franchise activities conducted by foreign-invested enterprises within the territory of China shall be governed by these Regulations. Where laws and administrative regulations provide otherwise for foreign-invested enterprises, such provisions shall prevail.
Article 29 Where a franchisor has entered into franchise contracts before the implementation of these Regulations, it shall file in accordance with the provisions of these Regulations within one year from the date of implementation of these Regulations.
Article 30 These Regulations shall come into force on May 1, 2007.
Translation note: This is an unofficial English translation for reference purposes. The original Chinese text shall prevail in all legal matters.
