萬國法律事務所

Taiwan’s Fair Trade Commission promulgated the amended Disposal Directions (Policy Statements) on the Business Practices of Franchisors (“Franchising Regulation”) on 5 January 2015. The major amendments include: a) earlier disclosure of information during preparatory stage, b) methods or evidence of financial forecast to be disclosed, c) alternative electronic means of disclosure permissible, and d) deadline for delivering contract document to franchisees specified.

a) Earlier Disclosure of Information During Preparatory Stage
Under the pre-amended Franchising Regulation, the franchisor is required to provide certain important information (see below) to the potential franchisee 10 days (or otherwise determined reasonable period) before the signing of formal franchising contract. In some circumstances, however, the franchisor may request a potential franchisee to pay certain fees and to sign draft contract, memorandum of understanding or letter of intent before the singing of formal franchising contract (“Preparatory Relationship”). And, if the potential franchisee decides not to go ahead, the payment will be confiscated or the potential franchisee shall otherwise pay compensation to the franchisor. Under the circumstances, the potential franchisee will in essence be compelled to sign a formal franchising contract. Therefore, it will be reasonable to require that the franchisor disclose the important information before the Preparatory Relationship. The amended Franchising Regulation thus requires the franchisor to disclose the important information to the potential franchisee 10 days (or otherwise determined reasonable period) before the entry to the Preparatory Relationship if there is such.

b) Methods and Evidence of Financial Forecast to Be Disclosed
Before the amendment, the important information to be disclosed includes the following 8 categories: 1) expenses before operation, 2) expenses during operation, 3) trademarks, patents or copyrights licensed and their details, 4) management assistance, training and instruction, 5) plans for setting up other franchisees in the same franchise area, 6) the total number and locations of the franchisees in the same franchise area, and the statistics of rescission or termination of franchises in the previous year, 7) restrictions entailed in the franchise during the contract, and 8) conditions on change, termination or rescission of franchise and handling approaches. Given that some franchisors may use financial forecast to induce potential franchisees, and such information is vital for potential franchisees’ evaluation, the amended Franchising Regulation requires that if there is any financial forecast information provided, the methods of calculation and the supporting evidence from existing franchises shall be disclosed as well.

c) Alternative Electronic Means of Disclosure Permissible
In the past, only the business addresses of the existing franchisees in the same franchise area may be disclosed via electronic documents. To cope with the electronic or paperless development, if agreed in writing by the potential franchisee, all the required important information may be disclosed to the potential franchisee by way of optical disks or other electronic media.

d) Deadline for Delivering Contract Document Specified
The pre-amended Franchising Regulation only requires that the franchising contract shall be executed in duplicate and each party keeps one original. The franchisor shall not refuse to deliver the executed contract to the franchisee. However, there is no provision as to when the franchisor shall deliver the executed original to the franchisee. In practice, owing to the need of using corporate seals or other internal administrative procedure, it is not possible for the franchisor to deliver the executed original on spot. The amended Franchising Regulation therefore expressly specifies that the franchisor shall in principle deliver the executed contract to the franchisee within 30 days of execution.


In addition to the above, the amended Franchising Regulation also restructures some provisions to make them more specific and, as a result, easier for the franchisors to follow.

For further information, please contact:
 

Chun-yih CHENG	E: chun-yih.cheng@taiwanlaw.com
Senior Partner	T: +886-2-27557366 Ext 158/208
Formosa Transnational Attorneys At Law	M: +886-917198161
13/F, 136 Jen Ai Road Section 3	F: +886-2-27086035
Taipei 10657, Taiwan	W: www.taiwanlaw.com