In the franchising business, a lack of sufficient information can lead to parties making inaccurate decisions and encountering disadvantages, especially for the franchisee, as the franchisor is usually the one who provides the standard franchise contract applicable to the franchisees. Franchisees often have little opportunity to negotiate contract terms. Therefore, to ensure the provision of information in franchising, Decree 35/2006/ND-CP has some regulations regarding the obligation to provide information during the negotiation phase of the franchising contract, thus each party has the responsibility to provide information to each other. Let’s explore this issue further with TNTP through the article below.
1. Parties obligated to provide information
In the pre-contractual phase, the legal regulations on franchising mainly govern the behaviour of two main entities: the Franchisor and the intended Franchisee.
Regarding the franchisor’s obligation to provide information, Clause 1 of Article 8 of Decree 35/2006/ND-CP stipulates: “The franchisor shall have to supply copies of the franchising contract form and the written introduction of its franchising to the intended franchisee at least 15 working days before signing the franchising contract unless otherwise agreed by the parties. Compulsory contents of the written introduction of franchising shall be specified and promulgated by the Ministry of Trade”.
Conversely, in the pre-contractual phase, the intended Franchisee has the obligation “to supply the franchisor with information reasonably requested by the latter before deciding on the grant of commercial rights to the former”.
Thus, according to Vietnamese law, the entities obligated to provide information in the pre-contractual phase include both the Franchisor and the intended Franchisee.
2. Scope of provided information
As mentioned above, the law stipulates the obligation to provide pre-contractual information for both the Franchisor and the intended Franchisee. However, the scope of information required from each party is different.
The Franchisor is responsible for providing a copy of the sample franchising contract and an introduction to their franchising as detailed and specifically regulated in Article 11 of Decree 35/2006/ND-CP and Annex III of Circular 09/2006/TT-BTM.
Specifically, in the case the parties choose to apply Vietnamese law, the franchising contract must include the following main contents: (i) The content of the franchising rights; (ii) Rights and obligations of the Franchisor; (iii) Rights and obligations of the Franchisee; (iv) Price, periodic franchising fees, and payment methods; (v) Duration of the contract; and (vi) Contract renewal, termination, and dispute resolution.
For the franchising introduction, according to Annex III issued together with Circular 09/2006/TT-BTM, it must include the following information: (i) General information about the Franchisor; (ii) Information on intellectual property rights; (iii) Information about the Franchisor; (iv) Initial costs the Franchisee must pay; (v) Other financial obligations of the Franchisee; (vi) Initial investment of the Franchisee; (vii) Obligations of the Franchisee to purchase or lease equipment to comply with the business system prescribed by the Franchisor; (viii) Obligations of the Franchisor; (ix) Market description of the goods/services traded under franchising; (x) Contents of the sample franchising contract; (xi) Information about the franchising system; (xii) Financial reports of the Franchisor; and (xiii) Rewards, recognitions to be received, or organizations to join.
Where the franchised commercial right is a common one, besides providing the above information, the secondary franchisor has to notify in writing the intended franchisee of the following contents: (i) Information on the franchisor that has granted commercial rights to it; (ii) Contents of the common franchising contract; (iii) Method of handling secondary franchising contracts in case of termination of the common franchising contract.
While the franchisor’s obligation to provide information is quite detailed, the scope of information that the intended Franchisee needs to provide is still quite general. Accordingly, the intended Franchisee will provide the Franchisor with the information reasonably requested by the Franchisor to decide whether to grant franchising rights to the intended Franchisee or not.
3. Duration for providing information
Regarding the duration for providing information, Clause 1 of Article 8 of Decree 35/2006/ND-CP stipulates that the Franchisor must provide the regulated information to the intended Franchisee at least 15 working days before signing the franchising contract unless otherwise agreed by the parties.
The duration for providing information by the intended Franchisee will be carried out according to the request of the Franchisor.
Above is the content of the article “The obligation to provide pre-contractual information in franchising” that TNTP presents to the readers. We hope the information provided is helpful to those interested in this issue.
Sincerely,
