Franchising has become a successful business model globally, and Thailand is no exception. Franchising businesses are rapidly expanding, yet Thailand still lacks a specific regulatory law to govern such businesses. This is surprising, as a draft of the Franchising Business Act was first released to the public in 2006, but not until recently has it returned to public attention. A public hearing, organised by the Commerce Ministry, was held in March 2011. Based on the current draft, franchisors and franchisees will need to prepare themselves for several changes.

Important impacts: In the pending bill, the two most important issues affecting franchisor practice are provided in Chapter 3 (Sections 18-32), which focuses on restrictions of a franchise business operation, and Chapter 4 (Sections 33-50), which discusses registration of a franchise business operation.

Restrictions: Franchisors and franchisees will be required to comply with certain restrictions on business operations. For example, franchisors will be duty bound to disclose data necessary for the franchise business operation. Furthermore, franchise business agreements must be in writing and must specify the details required by law. Failure to comply with these requirements would void the agreement between the franchisor and the franchisee.

In addition, the draft law states that franchisors must provide clear working manuals for franchisees to follow. If the agreement places territorial limits on the right to operate a franchise business, franchisors must not operate franchise businesses, or similar businesses, in these territories.

However, franchisors are also protected. For example, franchisees are prohibited from disclosing data relating to business operations that have been disclosed by franchisors.

Registration: If the draft law is approved, any franchisor who wishes to offer a business to franchisees in the future must register the operation with the Thai Commerce Ministry. All prospective applicants must possess the qualifications as required by law.

The Registrar must evaluate the accuracy of the following:

      i.        Applications for registration,

    ii.        Draft franchise business operation agreements,

   iii.        The existence of working manuals,

   iv.        Business plans that would be used in the promotion and control of the franchise business operation.

Another particularly noteworthy qualification is that the franchisor is required to have operated the franchise business for at least two years. The business must have at least two branches that have recorded profits for at least two consecutive accounting years, prior to the date of filing the franchise business registration application, and evidence of such profits should be submitted as required.

Finally, if the business operators fail to comply with such agreements during operations or are otherwise disqualified, the Committee for the Consideration of Administrative Punishment is empowered to issue franchise revocation orders. Upon the revocation of a franchise, relevant solicitation or advertisements can no longer be made and no rights to operate new franchise businesses will be granted.

Intellectual property issues: Under the draft law, a franchise business must include some form of intellectual property. The draft law provides the definition of a franchise as a business operation whereby a franchisor agrees to allow the franchisee to operate a business by using the franchisor's forms, systems, procedures, and intellectual property rights, or the ones which the franchisor has the right to allow another person to use for the purpose of operating a business, within a specified period of time or a specified area. This business operation is promoted and controlled under the franchisor's business plan, and the franchisee must pay remuneration to the franchisor.

Furthermore, Section 25 of the draft states that if the provisions of other laws require registration in order to grant the exercise of intellectual property rights by a third party, the franchisor shall duly register the granting of these rights.

Scope of enforcement: It is important to note that, as provided under Section 3, this draft law will not be applicable to franchise businesses whose franchisors are domiciled, and who have entered into a relevant contract outside the kingdom. For example, a franchise agreement between a foreign franchisor and a Thai franchisee will not be subject to restrictions under this law.

However, if a foreign franchisor grants a master franchising agreement to a Thai franchisee allowing the Thai franchisee to grant a sub-franchising agreement to other Thai entrepreneurs, the draft law will not be applicable to the master franchising agreement but will be for sub-franchising agreements.