CHINA Law and Practice Contributed by: Qiang Ma and Yan Feng Liu, Jingtian & Gongcheng
3.2 Franchise Registration Process Within 15 days of signing, for the first time, a fran - chise contract with a franchisee within China, a fran - chisor shall apply for archival filing to the archival filing authority. A franchisor applying for archival filing shall submit the following materials to the archival filing authority: • basic information regarding the commercial fran - chise; • information regarding the distribution of stores of all franchisees within China; • the market plan of the franchisor; • a business licence for enterprises with legal person status, or other certificate regarding legal status; • registration certificates regarding the trade mark rights, patent rights, and other business resources relating to the franchised business operations; • certification documents as prescribed in paragraph 2, Article 7 of the Regulation; • where a franchisor has engaged in franchised busi - ness operations before 1 May 2007, the provisions of the preceding paragraph shall not apply when it submits the materials regarding the application for archival filing of commercial franchises; • the first commercial franchise contract concluded between the franchisor and the franchisee within China; • a sample franchise contract; • the table of contents of the brochure for franchised operations (the number of pages of each chapter and section, and the total number of pages of the brochure shall be indicated and, if such a brochure is available on the internal network of the franchise system, the estimated number of pages for printing shall also be indicated); • approval documents of the relevant administrative organ for the engagement of a product or service subject to examination and approval under any law or regulation of the state; • the franchisor’s commitment bearing the signature of the legal representative; and • any other materials that the archival filing authority requires to be submitted.
3.3 Consequences of a Failure to Register Failure to complete the archival filing obligation within the prescribed time limit can result in administrative penalties. The competent commercial authority may order the franchisor to file within a specified period and can impose a fine of between CNY10,000 and CNY50,000. If the franchisor fails to comply after being ordered to do so, a higher fine of between CNY50,000 and CNY100,000 may be imposed, accompanied by a public announcement. 4. Other Requirements 4.1 Past-Profitability Requirements The Regulation stipulates several conditions a fran - chisor must meet, including: • the franchisor must be an enterprise (not any other unit or individual); • it must own business resources such as registered trade marks, enterprise logos, patents, or propri - etary technology; • it must possess a mature business model and have the capability to provide continuous business guid - ance, technical support and training services to the franchisee; and • it must have operated at least two directly owned outlets for more than one year (the “Two Stores, One Year” rule). It is generally recognised that a franchise agree - ment is void if the franchisor lacks enterprise status. However, a franchisor’s failure to meet certain other administrative requirements – such as not fulfilling the “Two Stores, One Year” requirement or failing to complete the mandatory archival filing with the com - petent authorities – does not automatically invalidate the franchise contract itself. These are considered separate administrative violations subject to penal - ties but do not inherently affect the civil validity of the agreement. Chinese regulations do not impose any specific past- profitability requirements on the franchisor or its out - lets.
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