Franchising and Licensing are two popular business models that allow businesses to expand their reach and grow their profits without investing heavily in new infrastructure or resources. However, there are some critical differences between the two models, both in terms of how they work and how they are regulated by Indonesian law.
In a Franchise arrangement, the Franchisor grants the Franchisee the right to use its Brand, Trademarks, Intellectual Property, and Business Model in return for a fee. The Franchisee is then responsible for operating the business by the Franchisor’s standards. In a Licensing arrangement, the Licensor grants the Licensee the right to use its Intellectual Property (e.g., Trademarks, Patents, Industrial Designs, and Copyrights) in exchange for a fee and for a certain period. The Licensee is then responsible for developing and marketing its own business using the licensed Intellectual Property.
The Indonesian government regulates franchises through the Government Regulation No. 42 of 2007. This regulation sets out the requirements for Franchisors and Franchisees, including registering the franchise with the Ministry of Trade. The law also establishes restrictions on franchise arrangements, such as the requirement for franchisors to provide franchisees with specific information about the franchise business.
The legal basis governing franchising and licensing also differs. Franchise activities are regulated through Government Regulation No. 42 of 2007, strengthened by the Minister of Trade Regulation No. 71 of 2019. This regulation regulates the requirements for Franchisors and Franchisees, including regulations governing the registration of franchises with the Ministry of Trade, as well as specific information about the franchise business that must be provided from the Franchisor to the Franchisee.
In addition to the two legal bases above, other legal grounds related to franchising arrangements are Law No. 5 of 1999, concerning the Prohibition of Monopolistic Practices and Unfair Business Competition; Law No. 40 of 2007, concerning Limited Liability Companies and Franchise Agreements that bind the party.
Meanwhile, licenses more closely related to Intellectual Property are governed by Government Regulation No. 36 of 2018 concerning the Recordation of Intellectual Property License Agreements, which are derivatives of Article 41 paragraph (1) of Law Number 20 of 2016 concerning Trademark and Geographical Indications.
Now let’s dive into the terms of Franchising and Licensing:
FRANCHISE REQUIREMENTS
By law, to conduct a franchise business in Indonesia the Franchisor will need to obtain the Franchisor’s STPW (permit registration) and Commitment Registration to the Ministry of Trade by registering the Franchise proposal documents and agreement draft. The Franchisee will need to do the same thing to obtain Franchisee’s STPW permit and Commitment Registration.
Required documents for Registration of Prospectus (Franchisor’s permits) of the Offered Franchise (to be filed by the Franchisor, notarized, and attested by the Indonesian Embassy) are as follows:
- Power of Attorney
- Application Letter (STPW)
- Details of Franchisor Identity
- Copy of the ID card of the Directors/Owners of the Franchisor
- Copy of Business License of the Franchisor
- History of Business of the Franchisor
- Organisation Structure of the Franchisor (from Board of Commissionaires, Shareholders, Directors, up to its operational level)
- Audited Financial Statements for the last 2 years
- Number of outlets owned by the Franchisor
- List of current Franchisee
- Rights and Obligations of the Franchisor and Franchisee
- List of Composition and numbers of franchised goods used by the Franchisee
- List of Composition of required manpower
- Trademark registration certificates in Indonesia or filing receipt of the Trademark application in Indonesia.
- Copy of Franchise Agreement.
After the prospectus (Franchisor’s permits) has been registered in the Ministry, the franchisor can begin the franchisee’s agreement. The franchisee must also register the signed agreement.
Required Documents for Registration of Franchise Agreement (to be filed by the Franchisee):
- Power of Attorney (by the Franchisee)
- Application letter made by Franchisee on the Franchisee’s company letterhead.
- Copy of the Prospectus of the offered Franchise;
- Copy of Article of Association of Franchisee’s company
- Copy of the Business Licenses of the Franchisee;
- Copy of the ID card of the Directors/owners of the Franchisee
- Copy of the Franchise Agreement and its Indonesian translation;
- Copy of Certificate of trademark registration.
- Composition and numbers of the employees (foreign and local staff)
- Composition and numbers of franchised goods used by the Franchisee
The documents above must be translated into the Indonesian language.
LICENSE AGREEMENT RECORDATION REQUIREMENTS
Required documents for recordal of Trademark license agreement:
- Executed License Agreement duly notarized by Notary Public in the relevant country
- Copy of the trademark registration certificate
- Power of Attorney (simply signed)
- Identity of the signors
- Deed of Incorporation of the parties (if any)
The followings have to be included in the license agreement:
- Place & Date of the letter signing
- Details of the parties including the address
- Object of trademark license (trademark registration no.)
- Terms of use (exclusive, non-exclusive, sub-licensable, or not)
- Duration
- Territory
For more information about IP License Agreement in Indonesia, you can read our previous articles here: Indonesia’s IP Odyssey: Unraveling the Ins and Outs of IP License Agreement Recordal
From the description above, if you already have a business with a proven and duplicable business model for at least two years, you can try running a franchise business as a Franchisor. On the other hand, if you want to start running a company from a proven business, you can become a Franchisee.
However, you can run a Licensing business if you are an IP owner who can provide freedom in IP management, including marketing strategies, as a Licensor. On the other hand, for those of you who have a lot of creative ideas to run a business from an IP you don’t own, you can apply for a license from the IP owner, and act as a Licensee.
Should you require further information and assistance regarding Franchise & IP Licensing in Indonesia, please contact us at [email protected].
Source:
- Government Regulation No. 42 of 2007 concerning Franchising
- Minister of Trade Regulation No. 71 of 2019 concerning The Implementation of Franchise
- Law No. 20 of 2016 concerning Trademarks and Geographical Indications
- Government Regulation No. 36 of 2018 concerning The Recordation of Intellectual Property License Agreements
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