Chinese Franchise Regulation

The current Chinese Franchise Regulations, which took effect on May 1, 2007, require franchisors to complete a regulatory filing and to provide disclosure before they may offer franchises in the PRC. Franchisors also must satisfy other requirements, such as the infamous “2+1 rule” (requiring a franchisor to have two company-owned units operating for at least one year each in order to be qualified to offer franchises). Our experience so far has been that these requirements are fairly straightforward, and registration under the Franchise Regulation has not been an impediment to franchising in China.

One of the firms that we work with in Beijing has let us know that the Chinese Ministry of Commerce (or MOFCOM) has proposed revisions to its franchise disclosure standards. Attached is a copy of the proposed revisions. Many of these proposed changes would reduce the franchisor’s disclosure burden, but some of the proposed language is vague and may result in franchisors having to shoulder an unclear disclosure burden.

The proposed revisions are subject to some degree of public review and comment. Unfortunately, the time frame within which to comment is very short: comments must be submitted to MOFCOM on Tuesday, May 10.

If you are interested in submitting a comment, please let me know as soon as possible. Due to the 12 hour time difference, if you’re interested in submitting a comment, we will have to do that on Monday, May 9 (our time) so that our local counsel can translate the comment and submit it to MOFCOM on Tuesday, May 10 2011.