Franchise Business But No Agreement? Beware of being considered illegal!

Franchise business is one of the business opportunities that can be started with small capital and hassle-free management. So it is not surprising that the franchise business or what is known as a franchise is still in great demand by business people from various circles.

Various types of franchise businesses can be easily found, ranging from contemporary drinks, korean street food, minimarkets, to laundry. A franchise is a special right owned by an individual or business entity to a business system with business characteristics in order to market goods and/or services that have proven successful and can be utilized and/or used by other parties based on a franchise agreement. This is as stated in the Regulation of the Minister of Trade No. 71 of 2019 concerning Franchising (Permendag 71/2019). Moving on from this definition, it can be said that the agreement is an important element in the franchise business. So, without an agreement, the franchise business can be said to be illegal because it does not have a business license. Well you know, how come? How is it related and what is the importance of an agreement in a franchise business? Check out the full explanation here.

Franchise Business Agreements and Legalities

Like a building, to remain sturdy requires a strong foundation. Similarly, the implementation of a franchise business, of course, requires a strong foundation in the form of an agreement. Because, the agreement is the basis of the agreement for the implementation of the franchise business. In this case, a franchise agreement is defined as a written agreement between a franchisor and a franchisee or a continuing franchisor and a continuing franchisee (Article 1 point 8 of MOT 71/2019). Another provision that regulates the importance of the agreement is shown in Article 4 paragraph (1) of Government Regulation No. 42/2007 on Franchising, which states that the franchise business is organized based on a written agreement between the franchisor and the franchisee with due regard to Indonesian law. In addition, the agreement in the franchise business has an important role in the issuance of a business license, namely the Franchise Registration Certificate (STPW). In addition, the franchisor is also known as the franchisor. Meanwhile, the franchisee is known as the franchisee.

Benefits of Making a Franchise Agreement

Trust is an important element when talking about business cooperation, including franchise businesses. However, this cooperative relationship cannot be carried out only on the principle of trust, because no one can predict what will happen later, especially in the business world. Therefore, a franchise agreement is made to protect the business from risks that may occur in the future. In addition, a franchise agreement also has several other purposes and benefits such as:

1. Ensure the efficient and smooth functioning of security and business mechanisms for every party involved,
2. Protect various types of businesses, especially franchise businesses that are run by one party or another,
3. As a tool to monitor and control whether the parties involved have done what has been promised or not, or even violate the things that have been agreed upon in the agreement,
4. Prevent problems from arising in the future because each party can know their rights and obligations, and support the smooth implementation of business,
5. As evidence in the event of a dispute.

READ ALSO: Recognize How to Create a Franchise and Its Procedures

In essence, a good franchise agreement must protect the interests of both parties and perpetuate good cooperation, thus avoiding the franchisor and franchisee from conflict.

Terms of Making a Franchise Agreement

A good franchise agreement must of course be implemented with due regard to applicable legal provisions. The provisions of the terms of this agreement are regulated from two sides, both generally and specifically. The terms of the agreement in general can refer to the provisions of Article 1320 of the Civil Code (KUHPerdata), which includes:

1. The existence of an agreement in the form of contents or clauses of the agreement
2. The age of the parties involved has reached a minimum of 18 years or has already entered into a marriage (adult according to the law)
3. Regarding certain matters, in this case regarding franchising or franchise
4. A clause is lawful, not contrary to law, decency, or public order.

Meanwhile, the specific requirements before making an agreement can be seen from the criteria for running a franchise business, which include:

1. Has business characteristics
2. Proven to be profitable and have at least five years of experience and have business tips to overcome business problems.
3. Have standards for the offering of goods and / or services made in writing
4. Easy to teach and apply by franchisees
5. There is continuous support from the franchisor, in the form of operational guidance, training, and promotion.
6. There are intellectual property rights that have been registered, in the form of trademarks, copyrights, patents, licenses, and trade secrets that have been certified by the competent authority.

After the basic requirements for making a franchise agreement have been fulfilled, as a business actor you can take the next step, namely submitting an STPW through the Online Single Submission (OSS) system.

What is the content of the franchise agreement?

The franchise agreement contains rights and obligations that bind and regulate the parties, namely the franchisor and franchisee. The contents of the franchise agreement at least include:

1. Names and addresses of the parties;
2. Types of Intellectual Property Rights (IPR), such as company brands and logos, design of outlets/business premises, management or marketing systems or seasoning blends;
3. The business activity that is agreed upon;
4. The rights and obligations of the franchisor or advanced franchisor and the franchisee or advanced franchisee;
5. Assistance, facilities, operational guidance, training and marketing provided;
6. Territorial restrictions provided by the franchisor or follow-on franchisor;
7. The term of the franchise agreement;
8. Payment procedure;
9. Ownership, change of ownership, and heir rights;
10. Establishment of a dispute resolution forum;
11. Procedures for renewal and termination of franchise agreements;
12. Guarantees from the franchisor or follow-on franchisor;
13. Number of outlets or business premises to be managed.

KH Contact

Planning to run a franchise business, but still don’t understand the series of processes and licensing documents that need to be prepared? Kontrak Hukum is ready to help!

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For only Rp1 million, we can help to create and review a franchise agreement contract that suits your needs. With an estimated processing time of only 2-4 working days, Kontrak Hukum provides all franchise business needs, including STPW. Find out more about franchise agreements by visiting the KH Services – Franchise Agreements page. For other business services, you can also contact us at Ask KH, or via Direct Message (DM) to Instagram @kontrakhukum.