Failure to register franchising operations could attract sanctions

Wednesday, Nov 19, 2014 09:36

The figures from the Ministry of Industry and Trade (MoIT) showed that only 126 foreign franchisers have registered their franchising activities in Viet Nam so far, mainly in the sectors of fast food, restaurant, education services and fashion retail. — Photo

Nguyen Thi Hong Anh and Nguyen Hai Yen, Indochine Counsel

GlobalVue has ranked Viet Nam as one of the top 10 potential markets for franchise ventures in 2013.

However, figures from the Ministry of Industry and Trade (MoIT) showed that only 126 foreign franchisers have registered their franchising activities in Viet Nam so far, mainly in the sectors of fast food, restaurant, education services and fashion retail.

This figure may not reflect the actual franchise situation in Viet Nam, as it does not count unregistered franchising activity or cases where the grant of a franchise is covered in or performed through trademark licence agreements or distribution agreements or the like, but not through a franchise contract and the registration of their franchise activity with the MoIT.

Under current regulations, failure to register franchising activity with the MoIT may be subject to administrative sanction ranging from VND5 million to VND10 million (US$238-476).

This article provides an overview of Viet Nam's regulations on franchise registration and franchise contracts.

At present, the registration of franchising activity in Viet Nam no longer applies to domestic or overseas franchises but rather, only to franchises from foreign countries that are entering Viet Nam. For a foreign franchiser to register their activity, whether primary franchise or sub-franchise, in Viet Nam, the first condition is that the franchise business must have been in operation for at least one year, for both the franchiser and primary franchisee. In this connection, the support document required is the franchiser's most recent audited financial report.

The second condition is that goods or services associated with a franchise are not in the list of goods and services from prohibited businesses under applicable laws of Viet Nam.

Foreign invested enterprise doing business on the purchase and sale of goods and conducting activities directly relating to the purchase and sale of goods are permitted to operate business under a franchise in respect to goods specified in accordance with Viet Nam's World Trade Organisation commitments.

In cases where a franchise is in association with a trademark, the franchiser is required to submit a trademark document to prove the franchiser's legal ownership of or use rights for such a trademark, and this may be the copy of a trademark registration certificate for an already-registered trademark or a copy of the relevant trademark application.

Regarding franchise contracts, franchising regulations mandate that the contract must be in writing, and if the franchise is from overseas and is about to enter Viet Nam, then the contract must be in Vietnamese (in addition to the franchiser's foreign language such as English). Franchise contracts shall contain the following provisions, inter alia:

(i) Contents of franchising;

(ii) Rights and obligations of the franchiser;

(iii) Rights and obligations of the franchisee;

(iv) Price and periodic franchising fee and payment method;

(v) Term of the contract;

(vi) Extension and termination of the contract; and

(vii) Dispute resolution.

Regarding obligations of the franchiser, according to prevailing regulations, the franchiser shall provide the franchisee with the guiding materials on the business system to be franchised, initial training and regular technical assistance during the operation of the franchise business system, and design and organisation of the business location at the franchisee's expense.

In addition, the franchiser shall ensure the legal intellectual property (IP) rights with respect to the IP objects associated with the franchise, as well as ensure equal treatment among franchisees of the franchised business system. Failing to comply with one of these obligations may lead to the legally unilateral termination of the franchise contract by the franchisee.

In addition, if a franchise contract includes the transfer of industrial property rights (IPRs), then the transfer shall be provided in a separate section of the franchise contract or in a separate agreement made in connection with the franchise contract, which is subject to the Law on Industrial Property.

As a commercial contract, parties to a franchise contract may agree to choose arbitration or court procedure for resolving disputes. In addition, the choice of foreign law as governing law for a franchise contract between a Vietnamese party and a foreign party is permitted under the laws of Viet Nam, provided that the parties so agree in the franchise contract and such agreement is not in conflict with the Civil Code or any other legal instruments of Viet Nam.


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