On July 24, 2024, in an online interview with the Voice of Ho Chi Minh City People (“VOH”), the Managing Partner Nguyen Van Phuc, representing HM&P Law Firm (“HM&P”), provided in-depth and practical insights into franchise operations in Vietnam. With extensive experience in commercial legal matters, Lawyer Phuc offered valuable analysis of the legal framework and critical considerations to help businesses navigate franchise operations effectively.
Opportunities and challenges of franchise operations
According to Mr. Nguyen Van Phuc, franchising is a popular business collaboration model, especially in the F&B sector, where major global brands such as KFC, Pizza Hut, Sushi Tei, and Mixue have thrived in Vietnam. In this model, the franchisor grants the franchisee the right to operate under its brand, following established operational procedures and benefiting from the franchisor's reputation and experience.
However, despite Vietnam's commitments under the WTO to place no restrictions on foreign franchisors, these activities must comply strictly with the law to ensure legitimacy. Attorney Phúc emphasized that thorough preparation from both parties is crucial for sustainable development and to mitigate legal risks.
For instance, foreign businesses intending to franchise in Vietnam must register with the Ministry of Industry and Trade, even when franchising from free trade zones or export processing zones into Vietnam’s territory. Furthermore, under Decree 35/2006/ND-CP (amended by Decree 08/2018/ND-CP), franchisors must operate their business system for at least one year before being eligible to franchise. This regulation ensures the stability and credibility of the franchisor's business system while reducing risks for franchisees.
Key points for drafting franchise agreements
During the interview, Lawyer Phuc highlighted essential aspects to consider when drafting franchise agreements:
1. Eligibility of participating parties:
- Franchisors must ensure their business system has been operational for the legally required duration.
- Franchisees are encouraged to register relevant business activities to avoid the risk of the contract being invalidated.
2. Form of the agreement:
The agreement must be in written form or other legally recognized formats (such as telegram, telex, fax, or data messages). Failure to comply with these formal requirements could result in contract invalidation, jeopardizing the franchisor's trade secrets and rights.
3. Key contractual provisions:
- Agreements should clearly outline the rights and obligations of both parties, including: franchise content, franchise fees, payment methods, validity period, territorial protection, contract termination, and dispute resolution.
- Special attention must be given to confidentiality clauses and provisions ensuring system-wide consistency.
Fostering sustainable franchise growth
Mr. Nguyen Van Phuc concluded that while franchising offers significant business growth opportunities, it also requires strict legal compliance. A clear understanding of legal requirements, coupled with transparent and detailed agreements, helps businesses minimize risks and achieve long-term success.
HM&P – Your trusted legal partner
With a team of experienced lawyers, HM&P is proud to be the trusted legal partner of numerous domestic and international businesses. We provide comprehensive legal solutions, particularly in the franchising sector, ensuring compliance and supporting businesses in achieving sustainable success.
HM&P extends its gratitude to the Voice of Ho Chi Minh City People for facilitating this platform to share valuable insights with the business community. We hope that HM&P’s contributions will help build a transparent business environment, fostering favorable conditions for robust enterprise growth in Vietnam.
Please follow the link below for the detailed content of this interview:
.png)
+84 28 7308 0839.png)
hmplaw.vn
