The Government Regulation on Franchise No 42/2007

Franchise
(Government Regulation No 42/2007 dated July 23, 2007)

By Grace of The Almighty God

The President of The Republic of Indonesia

Considering:
That in order to better enhance business order by means of franchise as well as drive up national business opportunities, it is necessary to stipulate a government regulation on franchise;

In view of:

1. Article 5 paragraph (2) of the Constitution of 1945
2. Civil Code (Statute Book of 1847 No 23);
3. Corporate Distribution Law 1934 (Statute Book of 1938 No 86);
4. Law No 9/1995 on Small-scale Business

Decides:

To stipulate:
The Government Regulation on Franchise

Chapter I
General Provision

Article 1

Referred to in this government regulation as:
1. Franchise shall be an exclusive right owned by individuals or statutory bodies to business system with specific business characteristics in the framework of marketing goods and/or services already proven successful and usable by other parties on the basis of a franchise agreement.
2. Franchisers shall be individuals or statutory bodies granting right to utilize and/or use their franchise to franchisee.
3.Franchisee shall be individuals or statutory bodies entitled by franchisers to utilize and/or use franchise owned by the franchisers.
4. Minister shall be the Miniter in charge of trade affairs.

Article 2

Franchise can be executed throughout the territory of Indonesia.

Chapter II
Criteria

Article 3

Franchise shall meet the following criteria:
a. having specific business characteristics;
b. proven already profitable;
c. having written standard of the offered service and goods and/or services;
d. easy to teach and apply;
e. the availability of sustainable support; and
f. intellectual property right has been registered.

Chapter III
Franchise Agreement

Article 4

(1) Franchise shall be executed on the basis of a written agreement between franchiser and franchisee by observing Indonesia’s law.
(2) The agreement as meant in paragraph (1) shall be written in English language and translated into Indonesian language.

Article 5

The franchise agreement shall minimally contain the following clauses:
a. names and addreses of parties;
b. kind of intellectual property right;
c. business activity;
d. rights and obligations of parties;
e. assistance, facilities, operational counseling, training and marketing povided by the franchiser for franchisee;
f. business area;
g. validity period of agreement;
h. procedures for the payment of compesation;
i. ownership, change in ownership and rights of heirs;
j. settlement of dispute; and
k. procedures for extending, discontinuing and  terminating agreement.

Article 6

(1) The franchise agreement can contain a clause of the granting of right to franchisee to appoint other franchisee.
(2) The franchise entitled to appoint other franchisee shall have and implement at least one franchise business place.

Chapter IV

Obligations of Franchisor

Article 7

(1) The franchise shall provide franchise-offering prospectus for would-be franchisee upon offering.
(2) The franchise-offering prospectus as meant in paragaraph (1) shall contain at least:
a. data about identity of franchiser;
b. legality of business belonging to franchiser;
c. history of business activity;
d. organizational structure of franchiser;
e. financial statement in the last two years;
f. quantity of business places;
g. list of franchisees; and
h. rights and obligations of franchiser and franchise.

Article 8

The franchiser shall conduct the fostering in the form of training, operationa counseling of management, offering, research and development to franchisee in a sustainable manner.

Article 9

(1) The franchiser and franchisee shall prioritize to the use of domestic goods and/or services as long as they meet the quality standards of goods and/or services stipulated in writing by the franchiser.
(2) The franchiser shall cooperate with small and medium-scale businesses in local region as franchisee or suppliers of goods and/or services as long as they fulfill the requirements stipulated by the franchiser.

Chapter V
Registration

Article 10

(1) The franchiser shall register franchise-offering prospectus before making franchise agreement with franchisee.
(2) The registration of the franchise-offering prospectus as meant in paragraph (1) can be done by other authorized parties.

Article 11

(1) The franchiser shall register franchise agreement.
(2) The registration of the franchise agreement as meant in paragraph (1) can be done by other authorized parties.

Article 12

(1) Application for the registration of the frnchise-offering prospectus as meant in Article 10 shall be submitted by enclosing documents:
a. copy of the franchise offering prospectus; and
b. copy of business legality.
(2) Application for the registration of the franchise agreement as meant in article 11 shall be submitted by enclosing the following documents:
a. copy of business legality;
b. copy of franchise agreement;
c. copy of franchise offering prospectus; and
d. copy of citizenship identity card of the owner/executive of company.
(3) The application for the registration of franchise as meant in paragraph (1) and (2) shall be submitted to the Minister.
(4) The Minister shall issue Certificate of Registration of Franchise if the application for the registration of franchise has met the requirements as meant in paragraphs (1) and (2).
(5) The certificate of registration of franchise as meant in paragraph (4) shal be valid for 5 (five) years.
(6) In the case of the franchise agreement not yet expiring, the Certificate of Registration of Franchise can be extended for 5 (five) years.
(7) The application and issuance of certificate of registration of franchise shall not be subject to cost.

Article 13

Further provisions on procedures for the registration of franchise shall be regulated by a regulation of the Minister.

Chapter VI

Fostering and Supervision

Article 14

(1) The government and regional governments shall foster franchise.

(2) The fostering as meant in paragraph (1) shall be in the form of the provision of:
a. franchise education and training;
b. recommendation to utilize marketing;
c. recommendation to attend franchise exhibitions in the country and abroad;
d. consultancy assistance through business clinic;
e. award to the best local franchiser; and/or
f. capital forticification assistance.

Article 15

(1) The Minister shall supervise the implementation of franchise.

(2) The Minister shall coordinate related institutions in executing the supervision as meant in paragraph (1).

Chapter VII

Sanction

Article 16

(1) The Minister, governors, regents/mayors in accordance with the respective scopes of authority can impose administrative sanction on franchisers or franchisee violating the provisions as meant in articles 8, 10 and/or article 11.

(2) The sanction as meant in paragraph (1) can in the form of:
a. written warning;
b. fine; and/or
c. revocation of certificate of registration of franchise.

Article 17

(1) The administrative sanction in the form of the written warning as meant in article 16 paragraph (2) letter a shall be imposed on franchisers and franchisees violating the provisions as meant in articles 8, 10 and 11.

(2) The written warning as meant in paragraph (1) can be issued 3 (three) times in a time interval of 2 (two) weeks, starting from the date of issuance of the previous warning.

Article 18

(1) The administrative sanction in the form of fine as meant in article 16 paragraph (2) letter b shall be imposed on franchisers not registering the franchise offering prospectus as meant in article 10 or franchisees not registering the franchise agreement as meant in article 11 following the issuance of the third written warning.

(2) The fine as meant in paragraph (1) shall be imposed as much as (IDR) Rp 100,000,000.00 (one hundred million rupiah) at the maximum.

(3) The administrative sanction in the form of revocation of certificate of registration of franchise as meant in article 16 paragraph (2) letter c shall be imposed on franchisers not fostering franchisees as meant in article 8 following the issuance of the third written warning.

Chapter VIII

Transitional Provision

Article 19

(1) Franchise agreements made before this government regulation is stipulated shall be registered as meant in article 11 paragraph (1).

(2) The registration as meant in paragraph (1)  shall be done in not latter than one year as from the date of nforcement of this govrenment regulation.

Chapter IX

Conclusion

Article 20

With the enforcement of this government regulation, Government Regulation No. 16/1997 on Franchise shall be revoked and declared null and void.

Article 21

With the enforcement of this government regulation, all legislation which constitutes technical rules of Government Regulation No. 16/1997 on Franchise shall be declared to remain effective as long as they do not contravene this government regulation.

Article 22

The government regulation shall come into force as from the date of promulgation.

For public cognizance, the government regulation shall be promulgated by placing it in Statute Book of the Republic of Indonesia.

Stipulated in Jakarta
On July 23, 2007
The President of Republic of Indonesia

Dr H Susilo Bambang Yudhoyono

Promulgated in Jakarta
on July 23, 2007
The Minister of Law and Human Rights

Andi Mattalata

Statute Book of The Republic of Indonesia
Year 2007 No. 90

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