Franchise Regulations in Indonesia – A Brief Overview

The regulatory landscape, in general

Currently, there are two main regulations governing franchising in Indonesia, being: (i) The Government Regulation No. 42 of 2007 concerning Franchising; and (ii) Minister of Trade Regulation No. 71 of 2019 concerning the Implementation of Franchising.

According to these regulations, a franchise is defined as a special right owned by an individual or business entity to a business system with business characteristics in the context of marketing goods and/or services that have been proven successful and can be utilized and/or used by other parties based on a franchise agreement.

The franchise regulations also stipulate that a franchise must meet specific criteria. If a business does not meet these criteria, it could not be considered or declared as a franchise.

The franchise criteria are as follows:

1. it must have specific business characteristics;

2. it has been proven to be profitable;

3. it has a written standard operating procedure relating to the goods and/or services;

4. the business methods are easy to teach and apply;

5. the franchisor provides ongoing support to the franchisee; and

6. the intellectual property rights relating to the franchise have already been registered or filed for registration in Indonesia.

Franchising in Indonesia must be based on a franchise agreement, which agreement must be governed by Indonesian law.

Before entering into the franchise agreement, a franchisor must firstly register the franchise offering prospectus to the Ministry of Trade and obtain the franchise registration certificate (“STPW”). In addition, franchisors are also obliged to provide continuous guidance to the franchisee, prioritize the use of domestic goods or services, and cooperate with small and medium-sized businesses as long as they meet the terms and conditions required by the franchise.

Franchise offering prospectus

Before signing a franchise agreement with the franchisee, the franchisor must provide a franchise offering prospectus to the franchisee at least 14 (fourteen) days before entering into the franchise agreement.

A franchise offering prospectus must at least contain the following:

1. the identity of the franchisor;

2. the franchisor’s business license, as registered in the country of origin;

3. brief history of the franchisor's business activities;

4. the organizational structure of the franchisor;

5. audited financial statements for the last 2 (two) years;

6. list of franchisees;

7. brief description of the rights and obligations of the franchisor and franchisee as stated in the franchise agreement; and

8. information regarding intellectual property rights related to the franchised business.

The franchise offering prospectus must be officially translated into the Indonesian language and formally registered through the online single submission system (OSS) before the franchisor signs a franchise agreement with the franchisee.

Registration requirements

Under the Indonesian franchise regulations, both franchisor and franchisee must register to obtain the franchise registration certificate (STPW). The franchisor must register its prospectus, while the franchisee must register the franchise agreement. It is prohibited to operate a franchise in the absence of STPW.

Franchise agreement - mandatory provisions

Indonesian franchise regulations stipulate that a franchise agreement must at least contain the following provisions:

1. names and addresses of the parties;

2. types of intellectual property rights;

3. franchised business activities;

4. rights and obligations of the franchisor and franchisee;

5. assistance, facilities, operational guidance, training, and marketing provided by the franchisor to the franchisee;

6. franchise territory;

7. period of the franchise agreement;

8. procedure for payment of fees;

9. ownership and change of ownership of the franchise business;

10. dispute resolution;

11. procedures for extending and terminating the franchise agreement;

12. guarantee from the franchisor to carry out its obligations until the franchise agreement ends; and

13. the number of franchise outlets managed by the franchisee.

Non-compete provision

Post-termination non-compete clauses are permitted as long as such a clause aims to protect the identity and reputation of the franchise. Nonetheless, the inclusion of this clause is only allowed for a reasonable period of time.

By: Emir Pohan and Gracia Elrica

DISCLAIMER:

This material is prepared for general information purposes only. It is not intended to give legal or any other professional advice, opinion or recommendation and, accordingly, it should not be relied upon. Specific legal advice should be sought before taking any action based on the contents in this material. Please contact us if you need any assistance regarding this matter.