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Establishing A Franchise In Vietnam – What Should Investors Pay Attention To?

Franchise is a popular business model for businesses around the world and has recently attracted traders and investors in Southeast Asia. Establishing a franchise can help businesses create capital and revenue, and in utilizing human resources from partners to expand their business and increase sales and profits from franchise royalties. It also helps to improve the value of enterprises in the international markets and Vietnamese market. Therefore, this article will give you an overview of franchise activities in accordance with Vietnamese laws.

  1. What is a franchise?

Franchise means running commercial activities, where a franchisor allows and requests a franchisee to purchase goods and supply services on her/ his own with the following conditions:

–    The purchase and sale of goods or service is conducted under a business model as prescribed by the franchisor and associated with the goods trademark, trade name, business secrets, business slogan, business symbol and advertisement of the franchisor.

–    The franchisor can control and support the franchisee in managing the business model.

  1. Franchise type

In Vietnam, there are 02 types of franchise; direct franchise and master franchise.

  • Direct franchise means an initial franchise between a franchisor and a franchisee. It is established when:
  • Franchisor is a trader giving a franchisee the right to use the business model in exchange for fee.
  • Franchisee is a trader receiving franchise rights from the initial franchisor.
  • Master franchise is established when the initial franchisor agrees and enters a franchise agreement giving the sub-franchising rights to a franchisee within a given territory for a certain period.
  • The Sub-Franchisor is a trader giving sub-franchise rights to Sub-Franchisee from Initial Franchisor.
  • The Sub-Franchisee is a trader receiving commercial rights from Sub-franchisor.
  1. What should investors do run a franchise?

Before planning to implement the franchise, the franchisor should consider whether the business has been at least one (01) year old or not. Since this is the initial condition which should be met by the franchisor.

Investors should carry out the procedure for franchise registration. This is exclusively important for obtaining franchise rights from abroad to Vietnam. When franchise is taken in export processing zones, non-tariff zones, or special custom areas, the registration procedure must be performed before starting the franchise. For the remaining franchise activities, it is necessary to carry out the procedure for franchise report without registration procedure.

  1. Constitution of a franchise agreement

A franchise agreement must have the following basic articles in accordance with Vietnam laws and must meet the requirements for submission to the competent authority:

  • Basic article regarding commercial rights.
  • Rights and obligations of franchisor.
  • Rights and obligations of franchisee.
  • Price and royalty for periodical franchise and payment methods.
  • Terms and validity of agreement.
  • Renewal, termination, and dispute settlement.
  • Intellectual property rights.

Depending on the practical business model, exclusive conditions of franchised goods and/ or services, and negotiations of both Parties, franchise agreement shall accordingly constitute articles in detail.

If intellectual property rights are licensed to the franchisee along with the business model, parties can draft a separate section under the franchise agreement pursuant to intellectual property laws and regulations.

  1. Intellectual property in franchising activities

Depending on nature of the franchised business model, using intellectual property rights that are licensed in the franchising agreement generally includes trademark, copyright, trade secrets, industrial designs and patent.

For example: A franchise selling bakery products shall include the transfer of intellectual property such as trademark, manufacturing process which may include an invention or a trade secret.

Therefore, to avoid infringements of intellectual property rights in the course of running franchise or after termination of franchising in Vietnam, the franchisor must complete the procedure for establishment of ownership rights before licensing intellectual property rights passively.

Hence, enterprises should pay attention to the chosen franchise type, franchise registration procedures at the competent state agencies and licensing intellectual property rights in accordance with Vietnamese law to protect the rights of enterprises while running the franchise business in Vietnam.

Writing time: 13/07/2021

The article is based on applicable law at the time noted above and may no longer be relevant at the time the reader approaches this article due to the change in applicable law and the specific case in which the reader wishes to apply. Therefore, the article has only reference values.