A look at the franchise business

By Harry He, AllBright Law Offices

The franchise business model was introduced into the PRC in the late 1980s, bringing revolutionary change to the commodity circulation system and offering the possibility of rapid growth.

賀雷, Harry He, Partner, AllBright Law Offices
Harry He
AllBright Law Offices

Legal characteristics

In a franchise business, a franchisor grants to a franchisee, by means of a franchise contract, the right to use its registered trademark, corporate logo, patents, know-how and other business resources. The franchisee carries on business according to the standard business model of the franchisor, and pays the franchisor a franchise fee in accordance with the franchise contract.

The franchise business can be divided into (i) direct and (ii) indirect (or regional) franchising. Direct franchising means that a franchisor grants an applicant a franchise, and the franchisee sets up a franchise network to carry on business in accordance with the franchise contract, but is not allowed to sublicense others to deal in the franchised products. Indirect franchising means that a franchisor grants a franchisee an exclusive franchise in a designated area, and the franchisee may sublicense to other franchisees, or set up its own franchise network to do business in the designated area.

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Harry He is a partner of AllBright Law Offices. His main practice areas are foreign direct investment, M&A and labour disputes.

LC & Co

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Pudong, Shanghai
Postal code: 200120

Tel: +86 21 6105 9000
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Email: harryhe@allbrightlaw.com