CHINA Law and Practice Contributed by: Qiang Ma and Yan Feng Liu, Jingtian & Gongcheng
2. Franchise Disclosure 2.1 Mandatory Disclosure Method and Timing of Disclosure
The Civil Code of the People’s Republic of China (hereinafter the “Civil Code”) provides the fundamen - tal legal principles governing all civil and commercial contracts, including franchise agreements. Provisions on contract formation, validity, performance, liability for breach and interpretation are directly applicable and serve as the general law underpinning franchise relationships. The Administrative Measures for Archival Filing of Commercial Franchises (hereinafter “the Filing Meas - ures”) were issued by the Ministry of Commerce (MOFCOM). This departmental rule specifies the pro - cedures and requirements for the mandatory post- contractual registration of franchise operations. The most recent version was revised and became effective on 29 December 2023. The Administrative Measures for the Information Dis - closure of Commercial Franchises (hereinafter “the Disclosure Measures”) were also issued by MOFCOM. This departmental rule provides a detailed elaboration of the franchisor’s extensive pre-contractual disclo - sure obligations to prospective franchisees. 1.3 Definition of a Franchise Agreement Article 3 of the Regulation defines “commercial fran - chise” as a business activity where an enterprise (the “franchisor”) that owns business resources licenses these resources to another business operator (the “franchisee”) through a contract. The key business resources include registered trade marks, enterprise marks, patents, and proprietary technology (know- how). Under the agreement, the franchisee is required to conduct its business operations under a uniform business model prescribed by the franchisor and, in return, pays franchise fees. The franchisor must be an “enterprise”. No entity or individual other than enterprises may engage in the franchise business as a franchisor.
China has a mandatory and detailed set of franchise disclosure requirements. The obligation is established by the Regulation and further specified in the Admin - istrative Measures for the Information Disclosure of Commercial Franchise. Pursuant to these, the franchisor must provide the disclosure information to the prospective franchisee in writing, and the disclosure must occur at least 30 days before the franchisee signs the franchise agreement. This serves as a mandatory waiting period. Disclosure Items The franchisor must provide a comprehensive set of information as set out below. • Basic information about the franchisor and its pri - mary business activities: (a) the franchisor’s name, address, contact infor - mation, legal representative, general manager, amount of registered capital, business scope, as well as the number, address and telephone number of the existing direct sales stores; (b) a brief introduction to the franchisor’s engage - ment in the franchised business operations; (c) basic information about the archival filing of the franchisor; (d) where an affiliated company of the franchisor provides the franchisees with products and services, the basic information of this affiliated company; and (e) information about any bankruptcies and/or ap - plications for bankruptcy of the franchisor or of its affiliated companies during the previous five years. • Information on the franchisor’s registered trade marks, patents, and other business resources: (a) a written statement to the franchisees regard - ing the information about the registered trade marks, enterprise marks, patents, know-how, business mode and other business resources which it can provide; (b) if the owner of the above-mentioned busi- ness resources is an affiliated company of the
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