Franchising In Indonesia: What To Do

What is a franchise?

Franchise or Waralaba in Bahasa Indonesia, is a special right that is granted to individuals and/or businesses in relation to certain business systems with business characteristics that involve the promotion of goods and/or services, that have been proven successful and that may be utilized and/or used by other parties based on franchising agreements. To put simply, a franchise is a business model that offers partnership agreements as a way to tackle the rapid growth of a company in an effective and productive manner.

Just as stated above, the establishment of franchise is based on franchising agreements, which includes a set of documents consisting: Franchise Offer Prospectus and Franchise Agreement. By definition provided by the law, a Franchise Offer Prospectus is a written information from Franchisors which (at least) describe the identity, legality, activities’ history, organizational structure, financial statement, amount of the place of business, list of Franchisees, right and obligation of Franchisors and Franchisees, as well as Intellectual Property Rights of the Franchisors. A Franchise Agreement, on the other hand, consists of the written agreement between Franchisors and Franchisees or Advanced Franchisors and Advanced Franchisees.

Who are involved in a Franchising Agreement?

Essentially, whether individuals or business entities are allowed to establish a Franchise. However, these subjects are further divided into four parties that might be involved in a Franchising Agreement, namely: Franchisors and Franchisees or Advanced Franchisors and Advanced Franchisees. Separately defined, Franchisors are individuals or business entities who grant the right to utilize and/or use the Franchise they owned to the Franchisees. While Franchisees are individuals or business entities who are granted the right to utilize and/or use the Franchise owned by the Franchisors. The only difference between a regular Franchisor/Franchisee and Advance Franchisor/Franchisee lies in their ability to proceed ahead with either the right by Franchisors to appoint Advanced Franchisees (for Advanced Franchisors) or the right by the Advanced Franchisors to utilize and/or use the Franchise (for Advanced Franchisees).

Additionally, these parties are divided into eight types basing on the origins of the parties involved. They are:

a.Franchisors from abroad;
b.Franchisors from within the country;
c.Advanced Franchisors from foreign Franchise;
d.Advanced Franchisors from domestic Franchise;
e.Franchisees from foreign Franchise;
f.Franchisees from domestic Franchise;
g.Advanced Franchisees from foreign Franchise; and
h.Advanced Franchisees from domestic Franchise.

What are the criterias for the legitimacy of a franchise?

There are mainly six criterias that need to be fulfilled for a franchise to be deemed legitimate in the view of Indonesia’s positive law, these are:

a.Has Business Characteristic

This means a business with excellence or difference which is hard to imitate compared to other similar business, which urge consumers to always seek for such characteristic, for example management system, method of sales and services or arrangement, or method of distribution which are the special characteristics of the Franchisor.

b.Proven to be profitable

Franchisors must have at least five years’ experience and must have ways of resolving any business issues that arise, as proven by the sustainability of a Franchisor’s business.

c.Has a written standard for the services and goods and/or services offered
d.Is easy to be taught and applied

Inexperienced Franchisees must be able to run the business in accordance with operational and managerial guidance that is provided by the relevant Franchisor.

e.Ongoing support shall be available

Support in this case relates to the sustainability and stability of the business’ operations that include: Operational guidance; Training; and Promotions.

f.The company’s Intellectual Property Rights (HKI) have been registered

These IP rights would include registered and certified elements or elements that are in the process of being registered. The rights might consist: 1) Trademarks; 2) Copyrights; 3) Patents; 4) Licenses; and/or 5) Trade secrets.
Note: In case provisions above are not fulfilled, Individuals/Business Entities are not allowed to use Franchise’s term and/or name for their name and/or business activities.

Stipulations regarding Franchise Logo

Specification regarding Franchise Logo is disclosed in Appendix III of Regulation of the Minister of Trade Number 71 of 2009 on Organization of Franchise. A Franchise Logo that’s been registered must be placed or installed in an open and easily visible place in either, the franchise’s head office; or every of the franchise outlet. Process of obtaining a Franchise Logo includes the Franchise organizers submitting their Franchise Logo application in writing to the Director of Business Development and Distributors, which must at least contain the amount and location of outlets/places of business as the plan of distributions.

How is a franchise agreement conducted?

Flow Process of Franchise Agreement

A Franchise Agreement is conducted through an ‘Offer-Acceptance’ contractual process that consists of Party A (Franchisors or Advanced Franchisors) delivering a Franchise Offering Prospectus to Party B (prospective Franchisees or prospective Advanced Franchisees) in no later than 2 (two) weeks prior to the signing of Franchise Agreement. The contents of the Franchise Agreement must adhere to the materials and/or clauses that are written in Appendix II of Regulation of the Minister of Trade Number 71 of 2009 on Organization of Franchise.

Note: Franchise Offering Prospectus must contain at least materials or clauses as written in Appendix I regarding ‘Material or Clause of Franchise Offering Prospectus’, and be written in or translated to Bahasa Indonesia. Additionally, Franchise Offering Prospectus registered by Franchisors From Abroad must be legalized by a Public Notary by enclosing a statement letter from Attaché of Trade of the Republic of Indonesia or the Indonesia Representative Office Official in the country of origin.

Registration Process

Prior to the process of Franchise Agreement, Franchisors or Advanced Franchisors must register their Franchise Offering Prospectus in order to draw up the main Franchise Agreement. The registration procedure for these documents are conducted through submission for application of Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba or “STPW”) via the OSS system as the Franchise Organizer would require to secure a Business License (“NIB”) in order to proceed with the registration process of obtaining the STPW.


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