Franchise is a form of business that society has a lot interest on, because it is believed to be easier to obtain profits for business owners. By using the same brand and business model which could be executed directly, the franchise business owner could be more easily to market the products that they sell. However, before conducting franchise business, the prospective franchise business should get to know the concept of franchise business in prior based on the applicable laws and regulations in Indonesia.

Franchise is now regulated in Government Regulation Number 42 of 2007 concerning Franchise and Ministry of Trade Regulation Number 71 of 2019 concerning Franchise Implementation (“MoTR 71/2019”). Based on Article 1 number 1 MoTR 71/2019, franchise is a certain right owned by an individual or business entity on a business system with business characteristics in order to market the goods and/or services that have been proven successful and could be utilized and/or used by other parties based on a franchise agreement. Furthermore, according to Article 4 MoTR 71/2019, there are several parties in the implementation of franchise, which are:

• Franchisor comes from overseas;
• Franchisor  comes from domestic;
• Continued franchisor comes from overseas franchise;
• Continued franchisor comes from domestic franchise;
• Franchisee comes from overseas franchise;
• Franchisee comes from domestic franchise;
• Continued franchisees come from overseas franchise; and
• Continued franchisees come from domestic franchise.

Based on Article 6 paragraph (1) MoTR 71/019, the implementation of franchise must based on franchise agreement which issued by the parties that have equal legal standing and Indonesian laws applies to them. Before registering the franchise agreement, franchisor or continued franchisor is required to register the franchise offering prospectus which at least consist of identities, legality, history of activities, organizational structure, financial reports, number of business place, list of franchisees, rights and obligations of franchisor and franchisee, and Intellectual Property Rights (“IPR”) of franchisor. Whilst, the franchisee or continued franchisee is required to register the franchise agreement. The registration of franchise prospectus and franchise agreement concerned are conducted through an application of Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba “STPW”).

Furthermore, according to Article 10 and Article 11 MoTR 71/2019, franchisor, continued franchisor, franchisee, and continued franchisee are required to have STPW through OSS. However, STPW could be declared invalid in the event that:

1. The franchisor:

• Stop the business activities; and/or
• IPR registration is not approved or the validity period of IPR has ended.

2. The continued franchisor:

• Franchisor and/or continue franchisor stop the business activities; and/or
• IPR registration is not approved or the validity period of IPR has ended.

3. Towards franchisee:

• The franchise agreement has ended;
• Franchisor and/or franchisee stop the business activities; and/or
• IPR registration is not approved or the validity period of IPR has ended.

4. Towards continued franchisee:

• The franchise agreement has ended;
• Franchisor, continued franchisor and/or continued franchisee stop the business; and/or
• IPR registration is not approved or the validity period of IPR has ended.

Essentially, MoTR 71/2019 does not distinguish between the franchisor comes from overseas with franchisor comes from domestic, continued franchisor comes from overseas franchise with continued franchisor comes from domestic franchise, franchisee comes from overseas franchise with franchisee comes from domestic franchise, or continued franchisees come from overseas franchises with continued franchisees come from domestic franchise. However, according to Article 14 paragraph (1) MoTR 71/2019, each franchise administrator is required to use franchise logo, except for the franchisor that comes from overseas. The ownership of STPW is a requirement in order that the franchise administrators could use franchise logo.

Every administrators are required to provide reports, where the franchisor comes from domestic, continued franchisor comes from overseas, continued franchisor comes from domestic and franchisee comes from overseas who have STPW are required to submit the report of franchise business activities to the Director of Business Development and Distribution Actors, while the franchisee comes from domestic; continued franchisee comes from overseas, and continued franchisee comes from domestic who have STPW are required to submit the report of franchise business activities to the head of institution that is responsible in the field of trade in province of DKI Jakarta or local district/city. Moreover, there are sanctions that may be subjected to the administrators of franchise who do not carry out their obligations, which are:

• Warning letter;
• Revocation of STPW; or
• Recommendations for revocation of business licenses and/or operational/commercial licenses.

Based on the explanation above, every parties that will conduct franchise business are required to understand the concept of franchise in prior and comply to the applicable laws and regulations relating to the implementation of franchise in order to avoid harm for the prospective franchise business in the future.

This Article is generally made for the purpose of ANR Law Firm publication only and should not be treated as legal advice for your legal problem. Shall you have any further questions regarding this topic, you may contact the Advocate who authored this article at anrlawfirm@anr-lawfirm.com.

Author: Anita Khoirunisa, S.H.