CHINA Law and Practice Contributed by: Qiang Ma and Yan Feng Liu, Jingtian & Gongcheng
• Abstracts of the franchisor’s recent two-year finan - cial statements audited by an accounting firm or auditing firm, as well as the abstracts of the audit - ing reports. • Information about major lawsuits and arbitrations relating to the franchised business operations of the franchisor within the past five years: (a) the term “major lawsuit or arbitration” refers to a lawsuit or arbitration with a value in dispute of CNY500,000 or more; (b) basic information about such lawsuits, where they are filed and their results if disclosed. • Information about the records of any serious illegal business operations of the franchisor and of its legal representative: (a) being fined not less than CNY300,000 but not more than CNY500,000 by the administrative law enforcement department; and/or (b) being subject to criminal liabilities. • The text of the franchise contract: (a) a sample franchise contract; and (b) if the franchisor requires a franchisee to sign any other franchise related contract with it (or its affiliated company or companies), it shall simultaneously furnish a sample of such con - tract. Cooling-Off Period Distinct from the disclosure period, the franchisee has a statutory “cooling-off” period during which they can unilaterally terminate the franchise agreement after it has been signed. 2.2 Consequences of a Failure to Disclose Right to Terminate and Claim Damages If a franchisor conceals relevant information or pro - vides false information during the disclosure process, the franchisee has the right to terminate the franchise agreement. The franchisee may also seek compen - sation for any losses incurred as a result of the non- disclosure or misrepresentation pursuant to the Civil Code. Administrative Fines The competent administrative authority (typically the Ministry of Commerce or its local counterparts) can impose penalties on the franchisor. These include issuing an order to rectify the violation and impos -
ing fines ranging from CNY10,000 to CNY100,000, depending on the severity of the offence. In serious cases, a public announcement of the violation may be made. 2.3 Franchise Disclosure Exemptions The legal texts do not specify broad exemptions from the mandatory disclosure obligation, such as for sophisticated franchisees or minimal investments. However, according to Article 4 of the Disclosure Measure, the obligation to provide a full disclosure document at least 30 days before signing a contract is waived in the specific scenario where a franchisor and a franchisee renew their agreement under identi - cal terms and conditions as the original contract. 2.4 Franchise Disclosure Language/ Translation Requirements Translation is not mandated by law but is practically necessary. For the purposes of archival filing, any documents submitted in a foreign language must be accompanied by a Chinese translation. The Regula - tion requires that a franchisor shall provide authentic, accurate and complete information to its franchisees. In China, franchisors are subject to a mandatory administrative filing system rather than a pre-approv - al registration. The legal basis for this requirement is found in Article 8 of the Regulation, which mandates that franchisors must submit a filing with the compe - tent authorities after signing their first franchise agree - ment. Detailed procedural rules are further outlined in the Filing Measures. Franchisors are legally permitted to offer, market and sign franchise contracts before fil - ing, provided they meet substantive legal criteria such as the “two-store, one-year rule” under Article 7 of the Regulations. The actual filing must be completed within 15 days following the execution of the initial franchise agreement and is submitted to the provin - cial-level Department of Market Regulation. 3. Franchise Registration 3.1 Mandatory Registration
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