Franchise Business in Vietnam

Franchising in Vietnam is experiencing explosive growth, reflecting the rapid development of the economy and changes in consumer habits among the population. With the advantages of a large and increasingly expanding market, Vietnam has become an attractive destination for investors in the franchising sector. In particular, the rise of the middle class and the preference for international brands have created a favorable environment for major brand chains to expand their operations. However, alongside these opportunities, businesses also face numerous challenges, from compliance with legal regulations to understanding and adapting to local consumer needs.

What is Franchising?

Regarding the concept of franchising, pursuant to Article 284 of the Commercial Law 2005, it is specifically defined as follows:

Franchising (franchise) is a commercial activity whereby the franchisor permits and requires the franchisee to independently conduct the purchase and sale of goods or provision of services under certain conditions.

A franchise contract is a contract that guides businesses in using a product or business process that is an object of industrial property and is protected. Franchising involves the transfer of technology, trademarks, or other intellectual property rights.

Conditions Required for Conducting Franchising Activities

Conditions for the Franchisor

• A trader is permitted to grant franchise rights when the business system intended for franchising has been in operation for at least 01 year.
• In cases where a Vietnamese trader is the primary franchisee from a foreign franchisor, that Vietnamese trader must have operated under the franchising method for at least 01 year in Vietnam before sub-franchising.
• Registration of franchising activities must have been completed with the competent authority (Ministry of Industry and Trade or Department of Industry and Trade).
• Compliance with conditions regarding goods and services: The goods and services subject to the franchise must not be included in the list of goods and services prohibited from business.
• In cases where the goods or services fall under the list of conditionally restricted business items or business items subject to conditions, the enterprise may only conduct business after obtaining a business license, equivalent certificate, or meeting all business conditions from the relevant industry management authority.

Note:
Pursuant to the latest provisions of Decree 08/2018/ND-CP, the conditions applicable to the franchisee and the list of goods and services permitted for franchising have been abolished.

Franchise Contract

Similar to most other commercial transaction contracts, a franchise contract must contain comprehensive provisions regarding the parties, specifically:

• Information of the franchisor: Business registration certificate, address, contact telephone number, tax code, name and title of the legal representative.
• Information of the franchisee: Full name or name of the legal representative, contact address, telephone number, ID/passport number.
• Explanation of specialized terms: Detailed definitions of terms related to the franchised trademark must be provided.
• Subject matter of the contract: This is the brand or trademark being franchised to the franchisee.
• Rights and obligations of the parties: This section must be detailed, based on the agreement between the parties in accordance with the principles of voluntariness and compliance with the law.
• Other provisions: Contract execution date and place, contract value, payment time and method, penalty clauses for breach.

A complete and clear franchise contract not only protects the rights of both parties but also establishes a solid foundation for a long-term and effective business relationship.

Rights and Obligations of the Parties in Franchising Activities

Rights of the Parties in Franchising Activities

Regarding the rights of the franchisor, pursuant to Article 286 of the Commercial Law 2005, the following are specifically stipulated:

Unless otherwise agreed, the franchisor has the following rights:

1. To receive franchise fees;
2. To organize advertising for the franchise system and franchise network;
3. To periodically or unexpectedly inspect the franchisee’s operations to ensure the uniformity of the franchise system and the stability of the quality of goods and services.

Regarding the rights of the franchisee, pursuant to Article 288 of the Commercial Law 2005, the following are specifically stipulated:

– Unless otherwise agreed, the franchisee has the following rights:

+ To request the franchisor to provide full technical assistance related to the franchise system;
+ To request equal treatment from the franchisor with respect to other franchisees in the franchise system.

Obligations of the Parties in Franchising Activities

Regarding the obligations of the franchisor, pursuant to Article 287 of the Commercial Law 2005, the following are specifically stipulated:

– Unless otherwise agreed, the franchisor has the following obligations:

+ To provide guidance documents on the franchise system to the franchisee;
+ To provide initial training and ongoing technical assistance to the franchisee to operate in accordance with the franchise system;
+ To design and arrange the sales and service premises at the franchisee’s expense;
+ To ensure intellectual property rights with respect to the subject matter recorded in the franchise contract;
+ To treat all franchisees in the franchise system equally.

Regarding the obligations of the franchisee, pursuant to Article 289 of the Commercial Law 2005, the following are specifically stipulated:

– Unless otherwise agreed, the franchisee has the following obligations:

+ To pay franchise fees and other payments under the franchise contract;
+ To invest sufficiently in facilities, financial resources, and human resources to receive the rights and business know-how transferred by the franchisor;
+ To accept the franchisor’s control, supervision, and guidance; to comply with the franchisor’s requirements regarding the design and arrangement of sales and service premises;
+ To keep confidential the business know-how received under the franchise, even after the franchise contract expires or is terminated;
+ To cease using the franchisor’s trademark, trade name, business slogan, business symbol, and other intellectual property rights (if any) or system upon termination or expiration of the franchise contract;
+ To operate in accordance with the franchise system;
+ Not to sub-franchise without the franchisor’s approval.

For free legal consultation at BKC Law, please contact our Lawyers using the following information:

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