As a business owner, who doesn’t want their business to grow? There are usually two ways that prove a business has leveled up, namely by establishing a branch office independently or opening a franchise.
Yes, although at first glance they seem the same, the fact is that there are a number of differences between branch offices and franchises.
One example is that not all branches can be said to be franchises. Conversely, not all franchises can be said to be branches of a business itself.
Furthermore, there are no specific requirements for opening a business branch. Meanwhile, the establishment of a franchise business is specifically regulated in Minister of Trade Regulation No. 71/2019 on Franchising.
So, what else is the difference between a branch and a franchise, including the differences in legality that both must have? To avoid misunderstandings, check out the explanation here.
What is a Business Branch Office?
A branch refers to an additional unit of a parent business or company that operates in a separate location.
Although tied to the parent, branches are authorized to make lower-level business operational decisions and are in practice subject to the parent company’s supervision.
In this case, the branch shares the same brand, products, and services as the parent company. However, the management of the branch company is responsible for the daily operations and performance of the branch.
What is a Franchise?
Franchise is defined as 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 Article 1 of MOT 71/2019.
Simply put, a franchise is a business model where the party that owns a certain brand or business concept (franchisor) gives the right to another party (franchisee) to open and operate a business using a predetermined brand and system.
In this case, the franchisee pays royalties or other fees to the franchisor in return. However, franchisees must also comply with the guidelines and standards set by the franchisor.
How are the Legalities for Branches and Franchises Different?
In terms of legality, here are some differences between a branch office and a franchise:
- Branch Office
Business licenses for the opening of a new branch will follow the business licenses already owned by the parent company. Considering that the branch company is only an “extension” of the parent company.
Yes, in order to open a branch office, the parent company must fulfill a number of requirements as stipulated in Investment Coordinating Board Regulation No. 13/2017, which are as follows:
- Deed and decree of the parent company
- Parent company NPWP
- Holding company business license
- Deed of opening branch office and appointment of branch office head
- ID card and TIN of the head of the branch office
- A statement letter about the business location of the branch office
For operational licenses, each branch office must still apply for them. Usually, the operational license is issued by the authorized agency/institution in accordance with the business sector of the business actor.
In addition to operational licenses, other legalities that need to be taken care of are the basic requirements for business licensing. Broadly speaking, here are the basic requirements of the business license in question:
- Building Approval (PBG)
- Certificate of Good Function (SLF)
- Conformity of Space Utilization Activities (KKPR) or location permit
- Environmental approval
- Franchise
Especially for franchises, there are several provisions that need to be complied with as stipulated in Permendag 71/2019. Where it is different from opening an ordinary business branch, a franchise business requires a Franchise Registration Certificate (STPW) as a legality requirement.
STPW itself functions as proof of prospectus registration or agreement registration given to the franchisor and/or franchisee.
The franchisor must register the franchise offering prospectus, while the franchisee must register the franchise agreement to obtain the STPW.
The franchise offering prospectus itself at least includes things like:
- Franchisor identity
- Franchise business legality
- History of business activities
- Organizational structure of franchisor or advanced franchisor
- Financial statements for the last two years
- Number of business premises
- List of franchisees or advanced franchisees
- Rights and obligations of the franchisor or advanced franchisor and the franchisee or advanced franchisee
- Franchisor’s intellectual property rights, including IPR registration status
Meanwhile, the franchise agreement is a written agreement between the franchisor and the franchisee. Where this agreement becomes strong evidence and can be the basis for doing things that have been agreed upon. STPW is valid for a period of five years and can be extended for the same period.
Franchise agreements generally contain the granting of permission to use licenses and trade names by the franchisor to the franchisee along with procedures for using the license.
In addition, the franchise agreement also includes compensation in the form of royalties that the franchisee will give to the franchisor.
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Both branch offices and franchises have the same goal, which is to expand the business and increase the profits of business actors.
There are many considerations that must be taken into account to determine which business system you will run, it all depends on your priorities and choices.
Whatever the business system, make sure to know and pay attention to the legality of the business.
If you choose to open a branch office, make sure to take care of the parent company’s business legality first such as the deed of establishment, NPWP, NIB, and operational business license.
Likewise with a franchise business, you also need to pay attention to legality according to provisions such as STPW and franchise agreements. This is strong and basic evidence that reduces the risk of legal problems in the future.
KH Contact
Well, for KH Pals who are still confused and confused about setting up a branch office or opening a franchise, you can just consult with Kontrak Hukum.
As a digital legal platform, we have been trusted by thousands of companies and businesses in Indonesia to fulfill their needs including the processing of branch office and franchise business legality documents.
For information on establishing a branch office, please visit the following page
KH Services – Branch Office Establishment
. Meanwhile, to manage your franchise business needs, you can visit
KH Services – Franchise Agreement (including STPW)
.
What are you waiting for? Let’s make your business expansion easier with Kontrak Hukum. If you still have questions, don’t hesitate to consult at
Ask KH
or send a direct message (DM) to Instagram @kontrakhukum.
