In recent years, hundreds of international franchises have registered to conduct commercial franchising activities in Vietnam.
In addition, a number of Vietnamese brands such as Trung Nguyen Coffee, T&T Fashion and Pho 24, have also franchised overseas.
Conditions applicable to the Franchisor
The business system intended for franchise has been in operation for at least 1 year.
A written approval by the Ministry of Industry and Trade regarding the franchise, except for cases exempt from franchising registration listed below.
Conditions applicable to the Franchisee
Franchisees being traders must have registered to do business in sectors subject to the franchise.
Example: In order to be granted Domino’s Pizza’s franchise, An Thanh Company Limited must have the sector of “Wholesale of food products” registered.
In the event where the Vietnamese franchisee is permitted by the franchisor to sub-franchise, the franchisee must have conducted business following such franchising model for at least 1 year before sub-franchising.
Goods and services permitted for franchising
Goods and services that are not on the List of goods and services prohibited from trading (such as: special and toxic minerals; imported scraps which pollute the environment, etc.)
In case of goods and services on the List of goods and services restricted from trading or subject to conditional trading, enterprises must obtain a Business License from a sectoral managing authority or other equivalent certifications, or meet other business conditions as prescribed by law.
List of goods and services prohibited and restricted from trading
Example: Franchising curative medicines for humans requires a Certificate of Satisfaction of Conditions for drug trading activities issued by the Department of Health.
Article 5, 6, and 7 of Decree 35/2006/ND-CP.
Franchises subject to registration with the Ministry of Industry and Trade
Commercial franchises from overseas to Vietnam.
Example: The famous American fast-food restaurant chain McDonald’s has registered their franchising activities in Vietnam with the Ministry of Industry and Trade.
A McDonald’s restaurant in Ho Chi Minh City, Vietnam
Commercial franchises from Export Processing Zones, Non-Tariff Areas or private customs areas to Vietnamese territory.
Example: SinWoa Company, operating in Linh Trung Export Processing Zone, Ho Chi Minh City, must register with the Ministry of Industry and Trade before franchising garment products into the territory of Vietnam.
Franchises exempt from registration with the Ministry of Industry and Trade
Domestic franchisors conducting franchising activities in Vietnam.
Example: The Gioi Phan Phoi Corporation franchise Viva Star cafes to Vietnamese traders.
A Viva Star franchise in Ho Chi Minh City
Commercial franchises from Vietnam to overseas.
Example: Pho 24 is not required to be registered in Vietnam when franchising in other countries (Australia, Korea, Hong Kong, etc.).
A Pho 24 restaurant in Korea
For cases in which franchise registration is not required, traders must establish a regime to periodically report to the Department of Ministry and Trade by January 15th of every year.
Clause 1 Article 18 of Decree 35/2006/ND-CP;
Clause 2 Article 3 of Decree 120/2011/ND-CP.
Dossier of registration for commercial franchising activities
In fact, the preparation process for this dossier can be complex, please refer to the full details here.
Traders in need of assistance in carrying out all franchise-related procedures are welcome to provide M&A Vietnam with the following:
- Certificate of Business Registration or Investment Registration
- Certificate of protection of industrial property rights
Procedures of franchising registration
The Ministry of Industry and Trade must be informed of any modifications regarding the Franchise Introduction, Business Registration Certificate or Certificate of protection of industrial property rights 30 days in advance.
Article 17, 19, 20, and 22 of Decree 35/2006/ND-CP;
Section II, III, and IV of Circular 09/2006/TT-BTM.
Negotiation of franchise agreements
In a long-term cooperation such as franchising, a written contract possesses the highest legal value, ensuring the interests of all parties.
Important notes for franchisors
Most agreements concerning franchising from overseas to Vietnam must be amended to comply with Vietnamese regulations on franchising.
Not only does an effective franchise agreement protect the interests of franchisors, it also helps persuade franchisees that this is an attractive business opportunity.
Although franchisors generally have a better negotiating position than franchisees, a wise franchisor usually reserves a number of important terms and enables the franchisee to negotiate others in order to show willingness in forming a ‘win-win’ cooperation.
In fact, many first-time franchisors in Vietnam learn to accept some losses at the beginning of conducting franchising activities to adjust their franchise development strategy accordingly.
A franchise agreement drafted carefully before engaging in franchising activities for the first time in Vietnam will enable franchisors:
- to easily manage franchising policies in the system;
- to ensure the conformity of quality standards; and
- to reduce costs and save time from constantly modifying the agreement.
Article 290 of the 2005 Commercial Law;
Important notes for franchisees
Most franchise agreements are drafted by the franchisors, in which there are certain obligations and limitations imposed on franchisees.
It is often not advantageous for franchisees to negotiate terms and conditions with franchisors whose franchise systems are well-established.
Nevertheless, franchisees are advised to request the franchisors to adjust unfavorable terms, especially important ones as follows:
- Exclusive territorial rights.
- Support in human and financial resources in designing, operations, advertising activities, etc.
- Sub-franchise to third parties
- Secured interests in the event of mergers and acquisitions or change of business model by the franchisor.
- Renewal of the franchise agreement.
- Termination of the franchise agreement in case of unsuccessful business.
It is strongly advised that franchisees look for another franchisor should they feel disadvantaged towards the unfavorable and non-negotiable terms.
First, if franchisees happen to also own one or a few properties that can be turned into franchise locations, this will put them in a favorable position to negotiate contracts.
We have never recorded any cases in which real estate rental cannot be negotiated.
Second, in certain cases, franchisors can agree to negotiate a contract if the franchisee accepts to pay an initial fee higher than standards.
Third, a contract is still modifiable if franchisors conduct franchising activities for the first time in Vietnam. Franchising agreements in Vietnam are required to be amended to best comply with Vietnamese regulations as mentioned below.
Rights of the franchisor
- Receive franchise sums (initial and regular franchise fees, training fees, advertising costs, etc.)
- Organize advertising activities for the franchise system and network.
- Conduct periodical or unscheduled inspections of operational activities of the franchisee.
Article 286 of the 2005 Commercial Law
Obligations of the franchisor
- Supply franchise disclosure document to the franchisee;
- Provide initial training and regular technical assistance to the franchisee to effectively administrate activities in accordance with the franchise system;
- Design and arrange locations for sale of goods or provision of services by the expenses of the franchisee;
- Ensure intellectual property rights for objects stated in the franchise agreement;
- Equally treat all franchisees within the franchise system.
Article 287 of the 2005 Commercial Law
Rights of the franchisee
- Request the franchisor to provide sufficient technical assistance related to the franchise system;
- Demand equal treatment for other franchisees in the franchise system.
Article 288 of the 2005 Commercial Law
Obligations of the franchisee
- Pay franchise sums and other amounts under the franchise agreement;
- Invest properly in facilities, financial and human resources to effectively take over the business rights and know-hows transferred by the franchisor;
- Accept the control, supervision and instructions by the franchisor;
- Comply with all requirements set forth by the franchisor on the design and arrangement of places for sale of goods or provision of services;
- Keep the franchised business know-hows confidential even after the expiration or termination of the franchise agreement;
- Stop using trademarks, trade names, business slogans, logos and other intellectual property rights (if any) or systems owned by the franchisor upon the expiration or termination of the franchise agreement;
- Manage operations in accordance with the franchise system;
- Not to sub-franchise unless otherwise permitted by the franchisor.
Article 289 of the 2005 Commercial Law
PLF LAW FIRM is inclined to represent investors in contract negotiation and implementation of legal procedures, as well as providing advice on legal issues occurred at the beginning of the franchise business to legal compliance issues throughout the operation duration.