By Gregory Sy and Currie Lee

3. Filing Requirements
Within fifteen days from executing the first franchise agreement, the franchisor must file with MOFCOM, specifically if the franchising activities take place within a single province, autonomous region or municipality under the central government (Beijing, Shanghai, and other major cities), then with the MOFCOM of that province, autonomous region or municipality under the central government; or if franchising activities take place in more than one province, autonomous region or municipality, then at the national level MOFCOM.

Thereafter, the relevant MOFCOM will have ten days to properly file all completed filing, and publish them on its website.

However, it is necessary to note that the franchisor must, within 30 days of any change potentially impacting the filing, apply for an alteration of its filings.

Franchisors must file the following: 
- Basic information about the commercial franchise;
-Distribution information of franchised stores in China;
-Franchisor’s Commercial Prospectus;
-Copy of business license or enterprise registration;
-Copies of certificates of trademarks, patents and other business resources related to franchise activities;
-Sample franchise agreement;
-Franchise operational manuals;
-Marketing plan;
-Written undertaking evidencing franchisor’s complies with the Qualifications and the Two-Plus-One Rule;
-Certificate evidencing compliance with the Two-Plus-One rule, issued by the city level in China and, for franchisors using space outside of China, business certificates translated, notarized and authenticated by the Chinese embassy; and,
-Other documents as required.

Completed filings may be cancelled in the event of any of the following occurrences:
-Franchisor’s business license was cancelled by the competent registration authority because of illegal operations;
-MOFCOM receives a court order regarding the cancellation of the filing due to illegal operations of the franchisor;
-Franchisor was discovered to have failed to disclose material information or provided false information; and,
-Franchisor itself cancels the filing.

4. Disclosure of Information
The following materials must be provided to the prospective franchisee a minimum of thirty days prior to the signing of the Franchise Agreement:

1.  Basic information on the franchisor and franchise activities:
a. Franchisor’s name, address, contacts, legal representative, general manager, registered    capital, scope of business, and the number of regular chains including their addresses and phone numbers;
b. A brief introduction to the commercial franchise activities of the franchisor;
c. Basic information on the archival filing of the franchisor;
d. If the franchisor’s associated company provides products and services to the franchisee, the associated company’s basic information must also be disclosed; and,
e. Information on any bankruptcy and/or application for bankruptcy of the franchisor or of its associated company in the preceding five years.

2. Basic information on the business resources of the franchisor:
a. Information available on registered trademarks, company logos, patents, proprietary technologies, and business methods, etc;
b. If the owner of any of the above-mentioned business resources is the associated company of the franchisor, then the basic information of the associated company must also be disclosed (the franchisor is also required to explain how to manage the franchise system upon termination fo the license contract); and,
c. Information on the business resources of the franchisor (or its associated company) in relation to litigation or arbitration. 

3. Basic information on franchise expenses:
a. If the type, amount, criteria and payment method of fees collected by the franchisor or on behalf of a third party cannot be disclosed, then the franchisor must explain the reason for the non-disclosure; if the fee collection standards are inconsistent, then the franchisor is required to disclose both the maximum and minimum standards, and explain the reason thereto;
b. The collection thereof, return conditions, return time, and return on investment; and,,
c. If the franchisee is required to pay a fee before the Franchise Agreement is concluded, then the franchisor must explain in writing the use of the fee and the conditions and method of return. 

4. Information on the prices and conditions of the products, services and equipment provided to the franchisee:
a. Whether the franchisee must purchase products, services or equipment from the franchisor (or its associated company), including the prices and conditions thereof;
b. Whether the franchisee must purchase products, services or equipment from the suppliers appointed or approved by the franchisor; and,
c. Whether the franchisee has the discretion to choose its own
suppliers and the standards for the selection of its suppliers. 

5. Information on the continuous provision of services to the franchisee:
a. Detailed content, manner of provision and implementation plans for professional training, including the training location, approach and duration; and,
b. Details regarding technical support and a catalogue of the operation manual of the franchise including the number of pages therein. 

6. Methods and content of guidance and supervision over the franchise activities of the franchisee:
a. The franchisor’s methods and content of guidance and supervision over the franchise activities of the franchisee, the franchisee’s obligations and consequences for failing to fulfill them.
b. Whether the franchisor is jointly liable with the franchisee for complaints by and compensation to consumers, and how to share such liability.

Gregory M. Sy is a partner / foreign counsel with Grandall Legal Group. His practice includes general business advisory for SME’s in China, particularly in the areas of international corporate structuring and transactions. Representative clients include the Consulate of the United States of America in China (Shenyang), Embassy of Brazil, various publicly listed companies (NYSE, LSE, DAX, and BSE), along with numerous other SME’s operating in a wide range of industries. Mr. Sy obtained an LL.B. from the University of Victoria, and is admitted to the New York bar. Gregory publishes extensively on a variety of China legal issues for international and local publications, and has recently acted as chief editor for Martindale’s China Law Digest. You can contact Gregory at gregsy@grandall.com.cn or learn more about the firm at www.grandall-profile.com.

This is the second part of “Guide to franchising in China” Next week we will publish the third and final part. Here you can read part 1 and part 3.