Franchising is a commercial activity in which the Franchisor allows the Franchisee to conduct the sale of goods and provision of services under certain conditions agreed upon by the parties and in accordance with Vietnamese law.
Franchising is a business model that benefits both the Franchisor and the Franchisee. The Franchisor can expand its operations, accelerate brand development, and most importantly, leverage the Franchisee’s capital, thereby reducing market penetration costs. Leveraging the Franchisor’s brand recognition, the Franchisee can immediately start business without having to invest significant time and resources from the beginning. Additionally, the Franchisee receives support and guidance on all operational matters as outlined in the Franchise Contract. However, the Franchisee will also be subject to certain restrictions imposed by the Franchisor, such as limitations on brand use, operating within a specific geographic area, and restrictions on sub-franchising without prior consent.
The F&B sector is one of the fastest-growing franchise industries in Vietnam, with major foreign and local brands such as Highlands Coffee, Gong Cha, Trung Nguyen, and Starbucks. Current franchise models combined with technological elements (e.g., cashless payments, barcode scanning) help optimize operational processes and supply chain management, enhancing customer experience.
Currently, franchising activities in Vietnam are mainly regulated by the 2005 Commercial Law and Decree No. 35/2006/ND-CP, issued by the Government on March 31, 2006, detailing the Commercial Law on franchising activities. This decree has been amended and supplemented by Decree No. 120/2011/ND-CP, dated December 16, 2011, and Decree No. 08/2018/ND-CP, dated January 15, 2018.
BASIC DEFINITIONS
- “Initial Franchisor” is the party granting commercial rights to the Primary Franchisee.
- “Primary Franchisee” is the party receiving commercial rights from the Initial Franchisor. The Primary Franchisee is the Secondary Franchisor in relation to the Secondary Franchisee. “Secondary Franchisor” is the party that has the right to re-grant the commercial rights it has received from the Initial Franchisor to the Secondary Franchisee.
- “Secondary Franchisee” is the party that receives the commercial rights from the Secondary Franchisor.
FRANCHISE PREREQUISITES
A trader is allowed to grant a commercial right when the business system intended for franchising has been in operation for at least one year. This provision is based on the operation time of the Franchisor’s franchise business system rather than its establishment date.
For example, if the Franchisor has been established for one year since being granted the Enterprise Registration Certificate, does this mean it has the right to grant a commercial right? The answer depends on whether the business system has been operating for one year. However, this scenario is unlikely in practice because after its formation, the Franchisor still needs time to develop the franchise business system, including branding and product research and development.
FRANCHISE CONTRACT
a. Contents
If the parties choose to apply Vietnamese law, the contract should include the following key contents:
- Content of the commercial right;
- Rights and obligations of the Franchisor;
- Rights and obligations of the Franchisee;
- Price, periodic franchise fee, and payment method;
- Duration of the contract;
- Renewal, termination of the contract, and dispute resolution.
b. Language
The franchise contract must be written in Vietnamese. In cases of franchising from Vietnam to foreign countries, the language of the contract shall be agreed upon by the parties.
c. Term
The term of the contract shall be agreed upon by the parties and may be terminated before its expiration in the following cases:
c.1. Termination by the Franchisor:
- The Franchisee no longer holds a Business License or equivalent documents required by law to operate under the franchise model.
- The Franchisee is dissolved or declared bankrupt under Vietnamese law.
- The Franchisee commits a serious violation of the law that could severely damage the reputation of the franchise system.
- The Franchisee fails to remedy non-fundamental violations of the franchise contract within a reasonable timeframe despite receiving written notice from the Franchisor requesting corrective action.
c.2. Termination by the Franchisee when the Franchisor violates the following obligations:
- Provide instructions on the franchise system to the Franchisee;
- Provide initial training and ongoing technical assistance to ensure compliance with the franchise system;
- Design and arrange business locations for sales and service provision;
- Ensure intellectual property rights for the elements stated in the franchise contract;
- Treat franchisees equally within the franchise system.
d. Effective date
The franchise contract takes effect from the time of signing unless otherwise agreed upon by the parties.
If the contract includes provisions on the transfer of intellectual property rights, that section shall be effective according to the relevant laws on intellectual property.
REGISTRATION AND REPORTING REQUIREMENTS
a. The following cases do not require franchise registration:
- Domestic franchising;
- Franchising from Vietnam to foreign countries.
For cases that do not require franchise registration, reporting must still be carried out with the Department of Industry and Trade.
b. In cases requiring franchise registration (e.g., franchising from abroad to Vietnam), the prospective Franchisor must register with the Ministry of Industry and Trade before implementing the franchise.
LEGAL CONSEQUENCES
A party involved in a franchise that commits a violation shall, depending on the nature and severity of the violation, be subject to different levels of fines. More serious violations may result in a remedial measure, namely the obligation to return illegal profits obtained from the violation.
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