Thursday, October 26, 2006

Six Foreign Jurisdictions Adopt Franchise Laws in 2006

It’s been conventional wisdom for a decade that international franchising is in a period of rapid growth, as franchisors cross borders to reach new markets. In many countries, the law affecting franchising has been a step behind the business realities. However, recent legal developments appear to be catching up in a hurry.

During the last 10 months, six foreign jurisdictions have adopted franchise laws or regulations, bringing the number of jurisdictions specifically regulating franchising to 23. The latest countries joining the list are Vietnam, Belgium, and Sweden.

Vietnam enacted a broad franchise disclosure/registration and relationship law, as well as adopting detailed implementing regulations. The law, effective January 1, 2006, requires franchisors to register with the Ministry of Trade prior to commencing franchising and to provide a prospective franchisee with a copy of the franchise agreement and a “franchise description document” at least 15 days prior to the execution of a franchise agreement. The law also imposes restrictions on the franchisor’s right to terminate a franchise and provides procedures for the assignment of a franchise.

adopted a statute that requires franchisors to provide the prospective franchisee with a two-part disclosure document at least one month prior to the execution of an agreement or commercial partnership with a franchisee. If any one of the required disclosures is not made, the franchisee may nullify the parties' agreement within two years of its execution. The law became effective February 1, 2006.

The Swedish Parliament passed the "Law on the Duty of a Franchisor to Provide Information" (Law No. 2006:484) in May 2006. It came into force on October 1, 2006, and governs agreements executed on or after that date. The law is strictly a disclosure law and does not govern the franchise relationship. It requires a franchisor to provide specific information to a prospective franchisee in "ample time before a franchise agreement is entered into." The law provides for a right to seek injunctive relief against a franchisor that fails to comply.

This flurry of legislative activity followed a relative slow period of franchise law enactments in the early part of this decade. The first active period for foreign franchise laws was in the mid-to-late 1990s.

All the foreign franchise laws and regulations appear in CCH Business Franchise Guide, the only resource that publishes global franchise laws in official and unofficial English translations.

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