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.
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.
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