The Administrative Measures on Filing of Commercial Franchise (the “Filing Measures”) and the Administration Measures on Disclosure of Commercial Franchise (the “Disclosure Measures”) was promulgated by the Ministry of Commerce of the People’s Republic of China on April 30, 2007 and came into effect on May 1, 2007. The two measures are promulgated for the purpose of the implementation of the Regulations on the Administration of Commercial Franchise promulgated by the State Council. The main points of these two regulations are as follows:
1. The Filing Measures
(1) Filing authority, methods and time period
The Ministry of Commerce and its branch at provincial levels are respectively responsible for the filings of commercial franchises. The franchisor shall go through the filing formalities through government website. Such filings include initial filing, modification filing, supplementary filing and annual report. The timing for different filings is also different.
(2) Supervision on the filing
The filing authority will make a timely announcement on the website of the Ministry of Commerce upon completion or withdrawal of a filing. The authority shall record and preserve the filing information accurately and shall keep confidential a franchisor’s business secrets.
(3) Jurisdiction
All commercial franchise operated within the territory of the PRC shall be governed by the Filing Measures which shall apply to not only domestic franchisors but also foreign franchisors including franchisors from Hong Kong, Macao and Taiwan.
2. The Disclosure Measures
(1) The time, methods and content
A franchisor shall disclose in writing to potential franchisee information on 12 areas at least 30 days prior to conclusion of a franchise contract. However, to the franchisor may require the franchisee to sign a confidentiality agreement before such disclosure.
(2) Prohibition on false advertisement
The franchisor is prohibited from taking any deceptive or misleading actions in promotion and marketing. Any advertisement cannot contain any information about actual franchise proceeds obtained by any single franchisee.