Regulations on Commercial Franchise Management

(Promulgated by State Council Order No. 485 on February 6, 2007)

Chapter 1 General Provisions

Article 1 These regulations are formulated to standardize commercial franchise activities, promote the healthy and orderly development of commercial franchising, and maintain market order.

Article 2 Commercial franchise activities conducted within the territory of the People's Republic of China shall comply with these regulations.

Article 3 The term commercial franchise (hereinafter referred to as franchising) as used in these regulations refers to business activities in which an enterprise owning registered trademarks, corporate logos, patents, proprietary technologies, and other business resources (hereinafter referred to as the franchisor) licenses other operators (hereinafter referred to as the franchisee) to use such resources under a contract, and the franchisee operates under a unified business model as agreed in the contract and pays franchise fees to the franchisor.

Other units and individuals outside of enterprises shall not act as franchisors to engage in franchising activities.

Article 4 Franchising activities shall follow the principles of voluntariness, fairness, and good faith.

Article 5 The commerce administrative department of the State Council is responsible for supervising and managing franchising activities nationwide in accordance with these regulations. The commerce administrative departments of the people's governments of provinces, autonomous regions, municipalities directly under the central government, and the commerce administrative departments of prefecture-level cities with districts are responsible for supervising and managing franchising activities within their respective administrative regions according to these regulations.

Article 6 Any unit or individual has the right to report violations of these regulations to the commerce administrative department. Upon receiving a report, the commerce administrative department shall handle it promptly and in accordance with the law.

Chapter 2 Franchise Activities

Article 7 Franchisors engaging in franchising activities shall have a mature business model and the capability to continuously provide franchisees with business guidance, technical support, and business training services.

Franchisors shall have at least two directly operated stores and have been in operation for more than one year.

Article 8 Franchisors shall file with the commerce administrative department within 15 days from the date of the first franchise contract signing in accordance with these regulations. Those engaging in franchising activities within provinces, autonomous regions, or municipalities shall file with the commerce administrative department of the respective provincial, autonomous region, or municipal people's government; those engaging in franchising activities across provinces, autonomous regions, or municipalities shall file with the commerce administrative department of the State Council.

Franchisors shall submit the following documents and materials when filing with the commerce administrative department:

(1) A copy of the business license or a copy of the enterprise registration (registration) certificate;

(2) A sample of the franchise contract;

(3) The franchise operation manual;

(4) The marketing plan;

(5) A written commitment and relevant supporting materials indicating compliance with the provisions of Article 7 of these regulations;

(6) Other documents and materials prescribed by the commerce administrative department of the State Council.

If the franchised products or services require approval according to law before operation, the franchisor shall also submit the relevant approval documents.

Article 9 The commerce administrative department shall file the franchisor within 10 days from the date of receiving documents and materials that comply with Article 8 of these regulations and notify the franchisor. If the submitted documents and materials are incomplete, the commerce administrative department may require the franchisor to supplement them within 7 days.

Article 10 The commerce administrative department shall publish the list of filed franchisors on the government website and update it in a timely manner.

Article 11 Franchisors and franchisees shall enter into a franchise contract in writing when engaging in franchising activities.

The franchise contract shall include the following main contents:

(1) Basic information of the franchisor and franchisee;

(2) The content and term of the franchise;

(3) Types, amounts, and payment methods of franchise fees;

(4) Specific content and provision methods of business guidance, technical support, and business training services;

(5) Quality, standard requirements, and guarantee measures for products or services;

(6) Promotion and advertising of products or services;

(7) Protection of consumer rights and compensation responsibilities in franchising;

(8) Modification, termination, and cancellation of the franchise contract;

(9) Liability for breach of contract;

(10) Dispute resolution methods;

(11) Other matters agreed upon by the franchisor and franchisee.

Article 12 The franchisor and franchisee shall agree in the franchise contract that the franchisee may unilaterally terminate the contract within a certain period after signing the franchise contract.

Article 13 The agreed franchise term in the franchise contract shall not be less than three years, except with the consent of the franchisee. The provisions of the preceding paragraph do not apply to the renewal of the franchise contract between the franchisor and franchisee.

Article 14 The franchisor shall provide the franchisee with the franchise operation manual and continuously provide business guidance, technical support, business training, and other services to the franchisee in accordance with the agreed content and methods.

Article 15 The quality and standards of franchised products or services shall comply with the requirements of laws, administrative regulations, and relevant national provisions.

Article 16 If the franchisor requires the franchisee to pay fees before signing the franchise contract, the franchisor shall explain in writing to the franchisee the purpose of such fees and the conditions and methods of refund.

Article 17 The franchisor shall use the promotion and advertising fees collected from the franchisee according to the contractually agreed purposes. The use of promotion and advertising fees shall be disclosed to the franchisee in a timely manner. The franchisor shall not engage in deceptive or misleading behavior in promotion and advertising activities, and advertisements shall not contain content promoting the franchisee's income from franchising activities.

Article 18 Without the franchisor's consent, the franchisee shall not transfer the franchise rights to others.

The franchisee shall not disclose or allow others to use the franchisor's trade secrets it has obtained.

Article 19  The franchisor shall report to the commerce authority the situation of franchise contracts concluded in the previous year within the first quarter of each year.

Chapter 3  Information Disclosure

Article 20  The franchisor shall establish and implement a complete information disclosure system in accordance with the regulations of the State Council's commerce authority.

Article 21  The franchisor shall provide the franchisee with the information stipulated in Article 22 of these regulations and the franchise contract text in writing at least 30 days before concluding the franchise contract.

Article 22  The franchisor shall provide the franchisee with the following information:

(1) The franchisor's name, domicile, legal representative, registered capital, business scope, and basic situation of franchise activities;

(2) The franchisor's registered trademarks, corporate logos, patents, proprietary technologies, and business models;

(3) The types, amounts, and payment methods of franchise fees (including whether a deposit is charged and the conditions and methods for refunding the deposit);

(4) The prices and conditions for providing products, services, and equipment to the franchisee;

(5) The specific content, provision methods, and implementation plans for continuously providing business guidance, technical support, and business training services to the franchisee;

(6) The specific methods for guiding and supervising the franchisee's business activities;

(7) The investment budget for franchise outlets;

(8) The number, geographic distribution, and business status assessment of existing franchisees within China;

(9) Summaries of financial accounting reports and audit reports audited by accounting firms for the past two years;

(10) Litigation and arbitration cases related to franchising in the past five years;

(11) Whether the franchisor and its legal representative have any major illegal business records;

(12) Other information stipulated by the State Council's commerce authority.

Article 23  The information provided by the franchisor to the franchisee shall be true, accurate, and complete, and shall not conceal relevant information or provide false information.

If there is a significant change in the information provided by the franchisor to the franchisee, the franchisor shall promptly notify the franchisee.

If the franchisor conceals relevant information or provides false information, the franchisee may terminate the franchise contract.

Chapter 4  Legal Liability

Article 24  If the franchisor engages in franchising activities without meeting the conditions stipulated in the second paragraph of Article 7 of these regulations, the commerce authority shall order correction, confiscate illegal gains, impose a fine of not less than 100,000 yuan and not more than 500,000 yuan, and make a public announcement.

Other units and individuals outside enterprises acting as franchisors engaging in franchising activities shall be ordered by the commerce authority to stop illegal business activities, confiscate illegal gains, and be fined not less than 100,000 yuan and not more than 500,000 yuan.

Article 25  If the franchisor fails to file with the commerce authority in accordance with the provisions of Article 8 of these regulations, the commerce authority shall order filing within a time limit and impose a fine of not less than 10,000 yuan and not more than 50,000 yuan; if the filing is still not made after the deadline, a fine of not less than 50,000 yuan and not more than 100,000 yuan shall be imposed and a public announcement made.

Article 26  If the franchisor violates the provisions of Articles 16 and 19 of these regulations, the commerce authority shall order correction and may impose a fine of not more than 10,000 yuan; if the circumstances are serious, a fine of not less than 10,000 yuan and not more than 50,000 yuan shall be imposed and a public announcement made.

Article 27  If the franchisor violates the provisions of the second paragraph of Article 17 of these regulations, the administration for industry and commerce shall order correction and impose a fine of not less than 30,000 yuan and not more than 100,000 yuan; if the circumstances are serious, a fine of not less than 100,000 yuan and not more than 300,000 yuan shall be imposed and a public announcement made; if a crime is constituted, criminal responsibility shall be pursued according to law.

If the franchisor uses advertising to implement deceptive or misleading behavior, penalties shall be imposed in accordance with the relevant provisions of the Advertising Law.

Article 28  If the franchisor violates the provisions of Articles 21 and 23 of these regulations, and the franchisee reports to the commerce authority and it is verified, the commerce authority shall order correction and impose a fine of not less than 10,000 yuan and not more than 50,000 yuan; if the circumstances are serious, a fine of not less than 50,000 yuan and not more than 100,000 yuan shall be imposed and a public announcement made.

Article 29  Those who fraudulently obtain others' property under the name of franchising and constitute a crime shall be held criminally responsible according to law; those who do not constitute a crime shall be punished by the public security organs in accordance with the provisions of the "Law of the People's Republic of China on Penalties for Administration of Public Security."

Those who engage in pyramid selling under the name of franchising shall be punished in accordance with the relevant provisions of the "Regulations on the Prohibition of Pyramid Selling."

Article 30  Staff of the commerce authority who abuse their power, neglect their duties, or engage in favoritism and corruption, if constituting a crime, shall be held criminally responsible according to law; if not constituting a crime, they shall be disciplined according to law.

Chapter 5  Supplementary Provisions

Article 31  Trademark licensing and patent licensing involved in franchising activities shall be handled in accordance with the relevant laws and administrative regulations on trademarks and patents.

Article 32  Relevant associations and organizations, under the guidance of the State Council's commerce authority, shall formulate franchising activity standards in accordance with these regulations, strengthen industry self-discipline, and provide related services to parties involved in franchising activities.

Article 33  Franchisors who have engaged in franchising activities before the implementation of these regulations shall file with the commerce authority within one year from the date of implementation of these regulations in accordance with these regulations; those who fail to file within the time limit shall be punished in accordance with the provisions of Article 25 of these regulations.

The franchisors stipulated in the preceding paragraph shall not be subject to the provisions of the second paragraph of Article 7 of these regulations.

Article 34  These regulations shall come into force on May 1, 2007.