DECREE 35/2006/ND-CP

March 31, 2006

DETAILING IMPLEMENTATION OF COMMERCIAL LAW 2005 REGARDING FRANCHISING

Chapter I. GENERAL PROVISIONS

Article 1. Scope ofregulation

This Decree details the provisions of theCommercial Law 2005 on franchising in the territory of the Socialist Republicof Vietnam.

Article 2. Subjects ofapplication

1. This Decree applies to Vietnamese traders andforeign traders involved in franchising.

2. Foreign-invested enterprises engaged in goodspurchase and sale and activities directly related to goods purchase and sale,apart from the provisions of Article 7 of this Decree, shall only be allowed toconduct franchising for goods items of which they are licensed to provideservices of distribution according to Vietnam's international commitments.

Article 3. Interpretationof terms

In this Decree, the terms below are construed asfollows:

1. ''Franchisor" means a trader thatgrants commercial rights, including also the secondary franchisor in relationto the secondary franchisee.

2. "Franchisee" means a traderthat receives commercial rights, including also the secondary franchisee inrelation to the secondary franchisor.

3. ''Secondary franchisor means a traderthat is entitled to sub-franchise commercial rights it has received from theprimary franchisor to the secondary franchisee.

4. ''Primary franchisee" means atrader that receives commercial rights from the primary franchisor. The primaryfranchisee shall be the secondary franchisor defined in Clause 3 of thisArticle in relation to the secondary franchisee.

5. ''Secondary franchisee" means atrader that receives commercial rights from the secondary franchisor.

6. ''Commercial rights" include one,several or all the following rights:

a) Right granted to the franchisee by thefranchisor that also requests the franchisee to undertake by itself thebusiness of supplying goods or providing services within a system set up by thefranchisor and associated with the franchisor's trademark, trade name, businessslogan, business and advertising logo;

b) Common commercial right granted by thefranchisor to the primary franchisee.

c) Right sub-granted by the secondary franchisorto the secondary franchisee under the common franchising contract.

d) Commercial right granted by the franchisor tothe franchisee under the commercial right development contract.

7. ''Business by mode of franchising"means business activities conducted by the franchisee under the franchisingcontract.

8. ''Commercial right developmentcontract" means a franchising contract whereby the franchisor grantsthe franchisee the right to set up more than one establishment to do businessby mode of franchising in a specified geographical area.

9. ''Common commercial right" meansthe right granted by the franchisor to the secondary franchisee, permitting thelatter to sub-grant commercial rights to secondary franchisees that are notpermitted to further grant such common commercial right.

10. ''Secondary franchising contract" meansa franchising contract signed between the secondary franchisor and thesecondary franchisee regarding common commercial rights.

Article 4. Powers toperform the state management of franchising

1. The Ministry of Trade shall be answerable tothe Government for performing the function of state management of franchisingnationwide and have the following duties and powers:

a) To perform the unified professional managementand provide guidance for realization of policies and provisions of law onfranchising; to organize the registration of franchising;

b) To assume the prime responsibility for, andcoordinate with ministries, ministerial-level agencies, Government-attachedagencies and provincial/municipal People's Committees in, inspecting,controlling, assessing and reporting to competent superior authorities onfranchising;

c) To propose to the Government for promulgationor promulgate according to its competence or propose amendments and supplementsto legal documents on franchising.

2. The Ministry of Finance shall, within theambit of its duties and powers, have to guide the tax regime applicable tofranchising and the fee for registration of franchising.

3. Ministries, ministerial-level agencies andGovernment-attached agencies shall perform the state management of franchisingwithin the ambit of their respective tasks and powers.

4. Provincial/municipal People's Committeesshall have responsibilities:

a) To perform according to their competence thestate management of franchising;

b) To direct provincial/municipal Trade Servicesand Tourism Services in organizing the registration of franchising according totheir competence, periodically inspecting, controlling and reporting to theMinistry of Trade on franchising in their respective localities.

Chapter II. FRANCHISING

Section 1. CONDITIONS FORFRANCHISING

Article 5. Conditionsfor the franchisor

A trader shall be permitted to grant commercialrights when fully satisfying the following conditions:

1. The business system intended for franchisehas been in operation for at least one year.

Where a Vietnamese trader is the primaryfranchisee of a foreign franchisor, such Vietnamese trader must conductbusiness by mode of franchising for at least one year in Vietnam beforesub-franchising.

2. Such trader has registered franchising withthe competent agency defined in Article 18 of this Decree.

3. The in-business goods and/or services coveredby commercial rights do not violate the provisions of Article 7 of this Decree.

Article 6. Conditionsfor the franchisee

A trader shall be permitted to receivecommercial rights when having the registration of business lines subject tocommercial rights.

Article 7. Goods andservices permitted for franchising business

1. Goods and services permitted for franchisingbusiness are those not on the list of goods and services banned from business.

2. Enterprises shall be permitted to deal ingoods and/or services on the list of goods and services restricted frombusiness or those on the list of goods and services subject to conditionalbusiness only after being granted business licenses or papers of equivalentvalue by the branch-managing agencies or fully satisfying business conditions.

Section 2. SUPPLY OFINFORMATION AND CONTRACTS IN FRANCHISING

Article 8. Thefranchisor's responsibility to supply information

1. The franchisor shall have to supply copies ofthe franchising contract form and the written introduction of its franchisingto the intended franchisee at least 15 working days before signing thefranchising contract, unless otherwise agreed by the parties. Compulsorycontents of the written introduction of franchising shall be specified andpromulgated by the Ministry of Trade.

2. The franchisor shall have to promptly notifyall franchisees of all important changes in the franchising system, which mayaffect the latter's business activities by mode of franchising.

3. Where the franchised commercial right is acommon one, the secondary franchisor shall, apart from supplying informationaccording to the provisions of Clause 1 of this Article, have to notify inwriting the intended franchisee of the following contents:

a) Information on the franchisor that hasgranted commercial rights to it;

b) Contents of the common franchising contract;

c) Method of handling secondary franchisingcontracts in case of termination of the common franchising contract.

Article 9. The intendedfranchisee's responsibility to supply information

The intended franchisee shall have to supply thefranchisor with information reasonably requested by the latter before decidingon the grant of commercial rights to the former.

Article 10. Industrialproperty subject matters in franchising

1. Where the franchisor licenses industrialproperty subject matters and contents of commercial rights to the franchisee,such a licensing of industrial property subject matters may be established intoa separate section in the franchising contract.

2. The section on licensing of industrialproperty subject matters in the franchising contract shall be governed byindustrial property law.

Article 11. Contents ofthe franchising contract

Where the parties choose to apply Vietnameselaw, a franchising contract may have the following principal contents:

1. Content of franchised commercial right.

2. Rights and obligations of the franchisor.

3. Rights and obligations of the franchisee.

4. Price, periodical franchise fee and mode ofpayment.

5. Valid term of the contract.

6. Renewal and termination of the contract, andsettlement of disputes.

Article 12. Language ofthe franchising contract

Franchising contracts must be made inVietnamese. For franchises granted by Vietnamese parties overseas, the languageof franchising contracts shall be agreed upon by the involved parties.

Article 13. Valid termof the franchising contract

1. The valid term of a franchising contractshall be agreed upon by the involved parties.

2. A franchising contract may be terminated aheadof the agreed time in the cases specified in Article 16 of this Decree.

Article 14. Time whenthe contract takes effect

1. A franchising contract shall take effect asfrom the time it is entered into, unless otherwise agreed upon by the involvedparties.

2. Where a franchising contract contains asection on licensing of intellectual property subject matters, such sectionshall take effect according to the provisions of law on intellectual property.

Article 15. Transfer ofcommercial rights

1. The franchisee may transfer commercial rightsto another intended franchisee when the following conditions are satisfied:

a) The intended transferee satisfies theconditions specified in Article 6 of this Decree;

b) Such transfer is consented by the franchisorthat has granted commercial rights to the transferring franchisee (hereinafterreferred to as the direct franchisor).

2. The franchisee must send a written requestfor transfer of commercial rights to the direct franchisor.

Within 15 days after receiving such writtenrequest of the franchisee, the direct franchisor must reply in writing, clearlystating:

a) Its consent to the transfer of commercialrights by the franchisee; or

b) Its rejection of the transfer of commercial rightsby the franchisee for the reasons specified in Clause 3 of this Article.

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

3. The direct franchisor may reject the transferof commercial rights of the franchisee for one of the following reasons:

a) The intended transferee fails to fulfill itsfinancial obligations under the franchising contract;

b) The intended transferee has not yet satisfiedthe criteria for being selected by the direct franchisor;

c) The transfer of commercial rights may exert agreat adverse impact on the existing franchising system;

d) The intended transferee disagrees in writingto fulfill the obligations of the franchisee under the franchising contract;

e) The franchisee has not yet fulfilled theobligations toward the direct franchisor, except here the intended transfereemakes a written commitment to fulfill such obligations on the franchisee'sbehalf.

4. The transferor of commercial rights shall nolonger hold the transferred commercial rights. All rights and obligationsrelated to commercial rights of the tranferor shall be transferred to thetransferee, unless otherwise agreed.

Article 16. Unilateraltermination of the franchising contract

1. The franchisee has the right to unilaterallyterminate the franchising contract in cases where the franchisor breaches itsobligations specified in Article 287 of the Commercial Law 2005.

2. The franchisor has the right to unilaterallyterminate the franchising contract in the following cases:

a) The franchisee no longer holds the businesslicense or papers of equivalent value, which the franchisee is required by lawto hold for conducting business activities by mode of franchising.

b) The franchisee is dissolved or goes bankruptaccording to the provisions of Vietnamese law.

c) The franchisee commits serious lawviolations, which may greatly harm the reputation of the franchising system.

d) The franchisee fails to remedy its immaterialbreaches in the franchising contract within a reasonable time limit, though ithas received a written notice from the franchisor requesting the remedying ofsuch breaches.

Section 3. REGISTRATION OFFRANCHISING

Article 17. Registrationof franchising

1. Before conducting franchising activities,Vietnamese traders or foreign traders that intend to franchise must registerfranchising with competent agencies defined in this Decree.

2. Agencies competent to register franchisingshall have to register franchising of traders in the franchising register andnotify in writing the traders of such registration.

Article 18. Decentralizationof responsibility to register franchising

1. The Ministry of Trade shall register thefollowing franchising activities:

a) Franchisings from overseas into Vietnam,including franchisings from export processing zones, non-tariff areas orseparate customs areas specified by Vietnamese law into the Vietnameseterritory;

b) Franchisings from Vietnam to overseas,including franchisings from the Vietnamese territory into export processingzones, non-tariff areas or separate customs areas specified by Vietnamese law.

2. Trade Services and Trade-Tourism Services ofprovinces or centrally-run cities where traders that intend to franchise makebusiness registration shall register franchising at home, except forfranchising across boundaries of export processing zones, non-tariff areas orseparate customs areas specified by Vietnamese law.

Article 19. Dossiers ofapplication for registration of franchising

A dossier of application for registration offranchising comprises:

1. An application for registration offranchising, made according to the form guided by the Ministry of Trade.

2. A written introduction of franchising, madeaccording to the form set by the Ministry of Trade.

3. Written certifications of:

a) The legal status of the intended franchisor;

b) Industrial property right protection titlesin Vietnam or a foreign country in case of licensing industrial propertysubject matters for which protection titles have been granted.

4. Where papers specified in Clauses 2 and 3 ofthis Article are written in foreign languages, they must be translated intoVietnamese and notarized by domestic notaries public or Vietnam's foreign-baseddiplomatic missions and consularly legalized according to the provisions ofVietnamese law.

Article 20. Proceduresfor registering franchising

1. An intended commercial franchisor shallregister franchising according to the following procedures:

a) Sending a dossier of application forregistration of franchising to the competent state agency defined in Article 18of this Decree;

b) Within 5 working days after receivingcomplete and valid dossier, the competent state agency shall registerfranchising in the franchising register and notify in writing the traders ofsuch registration.

c) Where the dossier is incomplete or invalid,the competent state agency shall, within 2 working days after receiving suchdossier, notify such in writing to the intended franchisor for supplementationand completion of its dossier;

d) The time limits specified in this Clauseshall not include the time for the intended franchisor to amend and supplementits dossier of application for registration of franchising;

e) Past the time limits specified in thisClause, if the competent state agency refuses to effect the registration, itmust notify such in writing to the intended franchisor, clearly stating thereasons for refusal.

2. Procedures for registering contracts onlicensing of industrial property subject matters shall comply with theprovisions of law on industrial property.

Article 21. Notificationof changes in registered franchising information

Where there are changes in registeredinformation specified in Clauses 2 and 3, Article 19 of this Decree, thefranchisor shall notify such changes to the competent state agency where it hasregistered franchising within 30 days after such changes arise.

Article 22. Revocationof franchising registrations

1. A trader's franchising registration shall berevoked in the following cases:

a) The trader terminates its business operationor shifts to another business line;

b) The trader has its business registrationcertificate or investment certificate withdrawn.

2. The agency that has effected the franchisingregistration shall publicly announce such registration revocation.

Article 23. Thefranchising registration fee

Intended commercial franchisors must pay thefranchising registration fee. The fee rates and regime of fee management anduse shall comply with the Finance Ministry's guidance.

Section 4. ACTS OF LAWVIOLATION IN FRANCHISING AND COMPETENCE TO HANDLE VIOLATIONS

Article 24. Acts of lawviolation in franchising

1. Traders involved in franchising that committhe following acts of violation shall, depending on the nature and seriousnessof their violations, be administratively sanctioned according to the provisionsof law on handling of administrative violations:

a) Conducting franchising business withouthaving fully satisfied the specified conditions;

b) Granting franchisings for goods or servicesbanned from business;

c) Breaching the obligation to supplyinformation in franchising specified in this Decree;

d) Including in written introductions offranchising untruthful information;

e) Violating regulations on registration offranchising;

f) Violating regulations on notification infranchising;

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

h) Failing to abide by requests of competentstate agencies conducting examinations or inspections;

i) Violating other provisions of this Decree.

2. Where traders conducting business by mode offranchising commit acts of violation, causing material damage to involvedorganizations and/or individuals, they must pay compensations thereforeaccording to the provisions of law.

Article 25. Competenceand procedures for handling administrative violations

Competence and procedures for handling acts ofadministrative violation specified in Article 24 of this Decree shall complywith the provisions of law on handling of administrative violations.

Article 26. Complaintsand denunciations

1. Organizations and individuals may complainabout the registration of franchising, payment of taxes and fees, inspectionand handling of violations in franchising activities according to theprovisions of law on complaints.

2. Individuals may denounce acts of lawviolation in franchising according to the provisions of law on denunciations.

Chapter III. IMPLEMENTATIONPROVISIONS

Article 27. Transitionalprovisions

Franchising activities conducted before theeffective date of this Decree must go through procedures for registrationaccording to the provisions of this Decree within 3 months after such effectivedate.

Article 28. Implementationeffect

1. This Decree takes effect 15 days after itspublication in CONG BAO. To annul all previous stipulations on franchisingwhich are contrary to the provisions of this Decree.

2. Ministers, heads of ministerial-levelagencies, heads of government-attached agencies and presidents ofprovincial/municipal People's Committees shall guide and implement this Decree.