The Ministry of Commerce Issued “Administrative Measures for Archival Filing of Commercial Franchise” and “Administrative Measures for the Information

On February 6, 2007, the State Council issued Order No. 458 to proclaim Administrative Provisions on Commercial Franchise. In order to implement the Provisions, the Ministry of Commerce passed on April 30, 2007 the Administrative Measures for Archival Filing of Commercial Franchise and the Administrative Measures for the Information Disclosure of Commercial Franchise, which came into force on May 1, 2007.

1. Archive management

1) Filing authority

The Ministry of Commerce and administrative department of commerce at provincial level are filing authority of commercial franchise. Those who are engaged in commercial franchise within a province, autonomous region or municipal city directly governed by the State Council shall put their business on file with the administrative department of commerce at provincial level where the franchiser is located. Those who are engaged in commercial franchise inter-province, inter-region or inter municipal city shall put their business on file with the Ministry of Commerce. The filing of commercial franchise all over the country is connected by internet. Franchisors, complied with Administrative Provisions, shall file on the website of the government.

2) Filing materials

Franchisor shall submit the following materials to the filing authority:

(1) Basic information of the commercial franchise, distribution of shops of all franchisee in China, marketing proposal of franchisor;

(2) Copy of business license or certificate of other entities;

(3) Copy of certificate of trademark right, patent right or other operative resources relevant to franchise;

(4) Certifying document issued by administrative department of commerce at city level conformed with Article 7(2) of the Provisions; Business certificate of the direct sales stores if the store is within the territory of China.

(5) Catalogue of the franchise hand book.

(6) Other necessary documents

3) Filing Procedure

The franchisor shall, within 15 days after the franchisor first comes into contract with the franchisee within the territory of the PRC, file its contract with the filing authority.The filing authority shall, within 10 days from the date of receiving the required documents and materials from the franchisor, put the contract on file and have it published on the website of the Ministry of Commerce. Should the submitted documents or materials be inadequate, the filing authority may ask for supplementary submission from the franchisor within 7days. The filing authority shall within 10 days after supplementary submission put the contract on file.The general public may find out the name of the enterprise, the registered trademark, the enterprise’s logo, patent, know-how and other operative resources used in the commercial franchise services and also other commercial franchise information on the website of the Ministry of Commerce.

2. Management of the Information Disclosure

1) Time of the Disclosure

The franchisor shall at least 30 days before coming into the commercial franchise contract, disclose to the franchisee the information related to franchise in written form and provide contract of commercial franchise.

2) Content to be Disclosed

The information to be disclosed by the franchisor shall include the following:

(1) The basic information of the franchisor and its service, e.g. the name, address, contact means, legal representative, general manager, the amount of registered capital, business scope of the franchisor and the present number, address and phone number of direct operative shops of the franchisor.

(2) The basic information of the operative resources. The franchisor shall in written form explain to the franchisee the available registered trademarks, the enterprise’s logo, patent, know-how, operation pattern and other operative resources.

(3) The basic information of the franchise fees, including: the type, sum, standard and payment means of the fees charged by the franchisor and on third party’s behalf; collection of guarantee, condition, time and method for return of the guarantee etc.

(4) The price and conditions for supply of the products, services or equipments to the franchisee, e.g. whether or not the franchisee must purchase from the franchisor or its related company the products, services or equipments and the relevant price and conditions.

(5) The continue provision of service by the franchisor, e.g. the detailed content, means of provision and implementing plans, including the place, means and duration of the business training.

(6) The means and content of direction to and supervision over the business operated by the franchisee.

(7) Related information of the franchisee with the territory of the PRC, e.g. the actual or anticipated average sales amount, cost, gross and net profit of the franchisee.

(8) Recent 2 years’ financial accounting and auditing report abstracts produced by accounting or auditing agencies.

3) Other Items

Before disclosing information to the franchisee, the franchisor has the right to request the franchisee to sign a confidentiality contract. After the disclosure, the franchisee shall produce to the franchisor a signed copy of receipt as to the known information in duplicate, one for the franchisee and the other for the franchisor.Should the franchisor conceal any information that should be disclosed or disclose any wrong information, the franchisee may dissolve the commercial franchise contract.