- Law No. 7 of 2014 concerning Trading amended by Law No. 11 of 2020 concerning Job Creation
- Government Regulation No. 42 of 2007 concerning Franchise
- Regulation of Minister of Trade No. 71 of 2019 concerning Implementation of Franchise
- Government Regulation of The Republic of Indonesia Number 5 of 2021 Concerning The Implementation of Risk-Based Business Licensing
Criteria of Franchise Business : Pursuant to Ministry of Trade Regulation No. 71 of 2019:
- has typical business characteristics;
- proven that the franchise is already profitable;
- has a written standard for marketing goods and/or services;
- easy to teach and apply;
- there is continuous support; and
- Registered Intellectual Property Rights (IPR).
Franchise Offer Prospectus
The business begins with preparing Franchise Offer Prospectus from the Franchisor to the Franchisee no later than 2 (two) weeks prior to the signing of the Franchise Agreement. Registration must be performed by franchisor for the Franchise Offering Prospectus at the Ministry of Trade through the OSS system prior to entering Franchise Agreement. The Franchise Offering Prospectus may only be registered to the MOT if the intellectual properties of the franchisor have been registered or are in the process of registration to the relevant authorities, following the registration, a franchisee shall also register the executed Franchise Agreement to the MOT through OSS System.
Franchise Offering Prospectus registered must be legalized by the Public Notary and foreign franchisor must obtain a certificate from the trade attaché of the Republic of Indonesia or an officer of the Indonesian Embassy in the origin country of the franchisor.
The Franchise Agreement must be governed by Indonesian law. The parties to the Franchise Agreement must also comply with the laws and regulations related to their business activities, such as laws and regulations in the fields of consumer protection, health, education, environment, spatial layout, employment and intellectual property.
Franchise Agreement
The Franchisor and Franchisee will then sign a Franchise Agreement which has to be made under Indonesian law. Some matters that must be determined in a Franchise Agreement.
The Franchise Agreement should contain at least the following:
- names and addresses of the parties;
- types of intellectual property rights;
- business activities;
- the rights and obligations of the parties;
- assistance, facilities, operational training and marketing guidance provided by the franchisor to the franchisee;
- business areas;
- term of agreement;
- payment of remuneration;
- ownership, change of ownership, and the rights of heirs;
- dispute resolution;
- procedure for the renewal, expiration and termination of the agreement. Please note that the agreement cannot be terminated unilaterally prior to the expiration of the agreement; and
- the number of outlets that will be managed by the franchisee.
It must be noted that there is a format of disclosures mandatory by the Law as under the MOT Regulation No. 71 of 2019 to determine the contents that must be stipulated in the Franchise Offering Prospectus and franchise agreement, which must also be in Bahasa Indonesia.
Besides the above, some other provisions that are commonly included in a franchise agreement among others:
- Confidentiality to prevent unpermitted disclosure of confidential information, knowledge, know-how belong to the Franchisor.
- Covenants not to compete or not to engage in the same business directly or indirectly for certain period of time.
- Assignment of the Franchisor’s rights and obligations to other party and no encumbrance on the Franchise Agreement or the Franchise Business by the Franchisee.
- Force Majeure which leads to the Franchisor’s rights to terminate the Franchise Agreement after certain period of time.
- Relationship of the Parties where the Franchisee will be the Franchisor’s independent contractor without rights to represent and take action on behalf of the Franchisor
What are the requirements to set up the business?
After the Franchise Agreement is signed, the Franchisor and the Franchisee are also required to obtain a Franchise Registration Certificate (STPW) where the STPW application is submitted through the OSS System.
- Both franchisors and franchisees are to obtain a franchise registration certificate or Surat Tanda Pendaftaran Waralaba (STPW). The franchise company is to update the Indonesian authorities which issued the STPW on the progress of their franchise through the submission of a detailed report by March 31 every year.
- Franchisors and franchisees intending to run their business in Indonesia must ensure that at least 80% of the raw materials, services, and business equipment are locally sourced, i.e. from Indonesia; an assessment team appointed by government authorities made the recommendation that such must be the case.
- Franchisors must provide a clear business proposition after having registered Intellectual Property Rights and need to abide by the franchise license rules.
- Franchisors need to possess at least five years of business experience and be able to report on the goods and services used for their business activities.
- Franchisors need to be able to demonstrate the profitability of the business and provide continuous support to their franchisees.
Responsibilities : Franchisors
- Obtain the STPW franchise registration certificate, which takes approximately three months to be issued and is valid for five years with the possibility of extension
- Approach the Ministry of Trade and register for the Prospect of Offer, which must be in Indonesian and legalized by a public notary and Indonesian Embassy where the franchisor is located
- Provide franchising agreement
Responsibilities : Franchisee
Register the franchising agreement with the Ministry of Trade; the franchising agreement must be in Indonesian and in accordance with Indonesian laws.
Source :
https://iclg.com/practice-areas/franchise-laws-and-regulations/indonesia