What is Commercial franchise? Regulations on transfer of commercial rights in Vietnam

What is Commercial franchise? Regulations on transfer of commercial rights in Vietnam (Internet image)

1. What is Commercial franchise?

According to Article 284 of the Commercial Law 2005, commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services on the following conditions:

- The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors’ trademarks, trade names, business knows-how, business slogans, business logos and advertisements.

- Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities.

2. Regulations on transfer of commercial rights in Vietnam

Transfer of commercial rights under Article 15 of Decree 35/2006/ND-CP is as follows:

- The franchisee may transfer commercial rights to another intended franchisee when the following conditions are satisfied:

+ The intended transferee satisfies the conditions specified in Article 6 of Decree 35/2006/ND-CP;

+ Such transfer is consented by the franchisor that has granted commercial rights to the transferring franchisee (hereinafter referred to as the direct franchisor).

- The franchisee must send a written request for transfer of commercial rights to the direct franchisor.

Within 15 days after receiving such written request of the franchisee, the direct franchisor must reply in writing, clearly stating:

+ Its consent to the transfer of commercial rights by the franchisee; or

+ Its rejection of the transfer of commercial rights by the franchisee for the reasons specified in Clause 3 of Article 15 of Decree 35/2006/ND-CP.

Past the above-said time limit of 15 days, if the direct franchisor fails to reply in writing, it shall be deemed as having consented to the transfer of commercial rights by the franchisee.

- The direct franchisor may reject the transfer of commercial rights of the franchisee for one of the following reasons:

+ The intended transferee fails to fulfill its financial obligations under the franchising contract;

+ The intended transferee has not yet satisfied the criteria for being selected by the direct franchisor;

+ The transfer of commercial rights may exert a great adverse impact on the existing franchising system;

+ The intended transferee disagrees in writing to fulfill the obligations of the franchisee under the franchising contract;

+ The franchisee has not yet fulfilled the obligations toward the direct franchisor, except here the intended transferee makes a written commitment to fulfill such obligations on the franchisee's behalf.

- The transferor of commercial rights shall no longer hold the transferred commercial rights. All rights and obligations related to commercial rights of the tranferor shall be transferred to the transferee, unless otherwise agreed.

3. Acts of law violation in franchising in Vietnam

Acts of law violation in franchising according to Article 24 of Decree 35/2006/ND-CP are as follows:

- Traders involved in franchising that commit the following acts of violation shall, depending on the nature and seriousness of their violations, be administratively sanctioned according to the provisions of law on handling of administrative violations:

+ Conducting franchising business without having fully satisfied the specified conditions;

+ Granting franchisings for goods or services banned from business;

+ Breaching the obligation to supply information in franchising specified in this Decree;

+ Including in written introductions of franchising untruthful information;

+ Violating regulations on registration of franchising;

+ Violating regulations on notification in franchising;

+ Failing to pay tax(es) according to the provisions of law, but not seriously enough for penal liability examination;

+ Failing to abide by requests of competent state agencies conducting examinations or inspections;

+ Violating other provisions of Decree 35/2006/ND-CP.

- Where traders conducting business by mode of franchising commit acts of violation, causing material damage to involved organizations and/or individuals, they must pay compensations therefore according to the provisions of law.

Quoc Dat

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