CLIENT SERVICES

Franchising

Overview

China has one of the world’s largest consumer markets, with a middle class that keeps growing and younger generations that want more and more. Thousands of franchisors, with hundreds of thousands of outlets, yield sales in the hundreds of billions of Renminbi. And foreign brands enjoy special followings in the local markets. Yet franchising in China carries special complications, legal as well as commercial – not to mention cultural.

DaHui’s practices cover each and every aspect of franchising in China. Many of our attorneys have constructed their careers on assisting large, often multinational, companies set up in local markets, including through franchising and other licensing agreements, whether from offshore or onshore. Assisting multi-outlet franchisees, master franchisees and many others who have adopted franchising as a business model is right in our wheelhouse. Our dedicated IP group helps establish, protect and further deploy the foundations for franchising, namely, brands (and other IP). Our PE/VC, M&A and capital markets teams handle hundreds of financings, mergers, acquisitions and joint ventures ever year. Labor issues are smoothed out by our employment experts while our arbitration and litigation groups expertly resolve any commercial disputes. And our top-tier cybersecurity, e-commerce and fintech lawyers support franchising’s advance to new dimensions.

Franchising businesses had better bear in mind that the industry environment and legal framework can change drastically, especially for foreign franchisors, from the early 1990s, when KFC and a few others began franchising in China – before any specific law regulated the activity and even, some say, before Chinese had a word for “franchising” – to the turbulent early 2020s. While myriad markets have opened up, and second-, third- and even fourth-tier cities present countless opportunities, all the more due diligence is advisable for finding and evaluating licensee candidates, and franchisors still need to meet the unique Chinese prerequisite of owning a mature business (specifically, through the so-called “2+1” rule, whereby franchisors must already operate at least two self-owned units for at least one year). And although administrative and judicial authorities have issued written rules addressing various specific issues in franchising, there is still no “franchise law”: as a result, many ambiguities exist and the attitudes of authorities are more variable. Most importantly, franchisors and franchisees must bear in mind the many other laws and regulations that will likely apply to them as a general matter (and are often subject to significant changes, e.g., the new Foreign Investment Law of 2020, the new Civil Code of 2021 and the revised Anti-Monopoly Law of 2022) or that may apply based on the specific industry of the franchise.

DaHui has long practiced across the spectrum of sectors in which franchises do or may operate in China, including hospitality and leisure, food and beverage, retail, professional services, auto, education, health and beauty. Each market affords unique opportunities while involving distinct complications, such as the digital and automation transformation in hospitality (with the same lagging behind in F&B) and the attendant data protection concerns, or the landmark tightening of education-specific regulations, thus necessitating more specialized counsel than just a “franchising law expert”. And for businesses with further vision seeking to tap China’s unparalleled vanguard movements, such as in the explosion of e-commerce: relatively young and modern legal counsel – who have always advised on the cutting-edge – is a key to success.

Our services for franchising specifically include:

  • Advice on and assistance with establishing franchising structures and arrangements
  • Development and implementation of measures for brand and IP protection
  • Handling of government filings and all other regulatory issues
  • Advice and assistance with due diligence, negotiations, drafting and closing processes for capital transactions, equity investments and other financing and refinancing, as well as joint ventures, real estate transactions and other deals
  • Representation in commercial arbitration and litigation
  • Tax planning and advice and representation for tax resolution
  • Advice and handling of employment and pension matters
  • Advice and assistance with requirements and measures for data protection
  • Review of and strategies for anti-trust compliance as well as handling of merger approval filings
  • Provision of full-suite of services for anti-bribery compliance and investigations
  • Advice and assistance with operational issues

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