Improved Balance Between Franchisors And Franchisees

April 16, 2012 by Cris | 0 Comments

Lexology:

As of 1 April 2012, the Measures for Administration on Information Disclosure of Commercial Franchise (“Measures”) took effect. The Measures were issued by the Ministry of Commerce of the People’s Republic of China on 23 February 2012 and replace the current version, which had been in effect since 1 May 2007.

A draft of the Measures was published for comment on 28 April 2011. Compared to the above draft, several items in the final Measures have been further revised. Same as in the past, the franchisor must disclose certain information to the franchisee at least 30 days before concluding the franchising contract. In the new Measures, the intention of the government to specify the franchisor’s disclosure obligations towards the franchisee is clearly apparent. However, the Measures also impose a number of stricter requirements on the franchisee. Compared to the previous regulations, the most important innovations in the Measures are as follows:

1. Widened scope of the term “affiliated parties”
A franchisor must disclose to the franchisee all of its affiliated parties that became insolvent or applied for insolvency in the last two years. The Measures have widened the definition of affiliated parties to include the franchisor’s individual shareholders. Formerly, affiliated parties were only the parent company of the franchisor and the parent company’s or the franchisor’s majority-owned subsidiaries. Additionally, if the affiliated party provides the franchisee with goods and services, the affiliated party itself rather than the franchisor must now disclose its information to the franchisee.

2. More detailed specification of the information to be disclosedcontinue reading this article here.

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