1. INTRODUCTION
Generally, franchising is known as a business model for companies who wish to expand their market share rapidly, and less expensively, through a licensing relationship. In this regard, the owners (“the Franchisor”) of a company wishing to expand their business grant a license to a third party (“the Franchisee”), to conduct business under its trademark and business operating methods, within a specific territory, according to the agreed terms of a contract (“the Franchise Agreement”). In other words, franchising is also known as an investment model, where the franchisee uses the franchisor’s successful business operating methods and trademark, to operate a similar, or identical, business, by paying a fee, and/or royalties to the franchisor. In international practice, there are two different types of franchise: a business format franchise, or a traditional or product distribution franchise. The former is more common, as the franchisor provides to the franchisee, not just its trade name, goods and services, but an entire system for operating the business. The latter type is less common because it basically only involves the products manufactured, or supplied, by the franchisor to the franchisee 1.
2. FRANCHISES IN CAMBODIA
Before entering into a franchise agreement, it is recommended to review the following:
a) The franchisee should have a clear understanding of the franchisor’s brand since it is the franchisor’s most valuable asset that is being licensed by the franchisee.
b) The franchisee, prior to concluding a franchise agreement, needs to understand what franchise system the franchisor is actually offering. It would be better to choose a franchise system where the franchisor provides full support in managing the evolution of the goods and services. This includes:
- a recognized brand name;
- site selection and site development assistance;
- training for the franchisee and his/her team;
- research and development of new goods and services;
- headquarters and field support and;
- initial and ongoing marketing and advertising campaign.
A franchise is a so-called contractual relationship, between the franchisor and the franchisee, allowing the business owner to use the franchisor’s brand, and method of doing business, in order to distribute goods or services to the consumer. It is important to note that under the law, every franchise is a license, but not every license is a franchise. When setting up a franchise in Cambodia, there are several questions that need to be addressed. While Cambodia has attracted a growing number of franchise businesses, it currently has no legal framework to regulate franchises, and no specific legal provisions to govern franchise agreements in the Kingdom. However, this type of franchise agreement is commonly used in business transactions throughout the country. An owner of a well-developed business (the franchisor), consents to their business partner (the franchisee) to operate an identical or similar business model, in accordance with the methods and procedures prescribed by the franchisor.
The franchisor may provide the franchisee assistance, and business advice, throughout the duration of the agreement, in exchange for fees and/or royalties. Since the franchise agreement is considered a contract, it falls under the general provisions governing contractual obligations, where the rights and obligations of both the franchisor and franchisee should be clearly specified.
Consequently, whilst franchise agreements are not specifically regulated, they are covered by the law concerning Marks, Trade Names and Acts of Unfair Competition (the “Trademark Law”). Certain specific points, nevertheless, are provided in the current legislation. For example, in order to have an effect on third parties, and not only between the franchisor and the franchisee, the license or franchise agreement has to be recorded with the Department of Intellectual Property (DIP) at the Ministry of Commerce.
Furthermore, the failure to register increases the party’s vulnerability, and significantly reduces their prerogatives, such as claims for damages, or licensee’s rights to enforce against infringement. In addition, a certain number of procedural clarifications have been added to the Trademark Law. As previously noted, since a franchise agreement is not specifically defined under Cambodian laws and regulations, general rules governing contracts apply to such agreements. Under the Cambodian Civil Code, parties to any contract must have legal capacity to enter into a contract, before a valid contract can be established. For this reason, to genuinely establish a franchise agreement, both parties must possess full legal competency, as defined by Cambodian law, to enter into a contract. Given that the Cambodian Law on commercial enterprises does recognize the legal personality of a foreign juristic person, we find no issue regarding the legal capacity, of either the franchisor or the franchisee, to bring to a conclusion a franchise agreement.
While awaiting specific regulations for regulating this kind of franchise agreement, all the above-mentioned laws and regulations are being used to protect and guarantee the rights and benefits of both the franchisor and franchisee. International best practices concerning this type of business model have also been integrated into current franchising procedures in Cambodia.
In order to run a successful franchise, it is crucial to draw up a comprehensive franchise agreement, which should include the following:
- The franchise system;
- The territory;
- Rights and obligations of the franchisor and the franchisee;
- Terms of the franchise;
- Payment and royalties made by franchisee to the franchisor;
- Termination and/or the right to transfer the franchise; and
- Training, assistance and advertising.
3. REQUIREMENTS FOR RECORDAL/ REGISTRATION
As provided in Article 52 of the Trademark Law, any license contract shall be recorded with the Ministry of Commerce, though its contents will remain confidential. This contract shall have no effect against third parties until such recording is executed.
Article 27-3 of Sub-Decree on the Implementation of the Law Concerning Marks, Trade Names and Acts of Unfair Competition of the Kingdom of Cambodia (the “Sub-Decree on Trademarks”) stipulates that a licensing contract submitted for recordal under Article 52 of the Trademark Law must be accompanied by a copy of trademark registration certificate, a notarized Power of Attorney and an original copy of the Licensing Contract or its certified copy. The parties shall file the request for recordal of the franchise agreement/trademark license agreement either before or within six (06) months from the date of signature of the franchise agreement 2.
Article 6 of the Sub-Decree on Recordal of License or Franchise Agreement also stipulates that the contract is an object of recordal request, and therefore must clarify the important meanings of the agreement, as below:
- Identity of provider and recipient as:
- Name, Nationality and permanent address if provider and recipient is individual; or
- Name, Nationality and Headquarters’ registered address if the provider and recipient is a Legal Entity
- Detail on the Trademark such as Trademark, registered number or Trademark registration number, Category of goods or services and types of goods or services which are the objects for recordal request.
- Typically the type of License or Franchise which is given by the contract: Exclusive, Non-Exclusive, Single or Third-Party contract.
- Duration of permission is specific set in the contract or is set by the conditions and regulation which are written on other related contracts.
- Duration of permission is specific set in the contract or is set by the conditions and regulation which are written on other related contracts.
- Signature of both parties and verification by notary or competent authority.
Based on practice, the registrar requires additional documentation such as the notarized extract of the summary franchise agreement and the translation of the extract of the summary franchise agreement into Khmer language and certified by the trademark agent. Kindly note that there are two professional translators that are recognized by the Department of Intellectual Property of the Ministry of Commerce, being the aforesaid trademark agent and Pyramid Translation Services. Therefore, the parties can choose which one they prefer to translate the agreement.
In summary, current required documents for recording trademark license agreement/franchise agreement in Cambodia are as follows 3:
- Notarized Copy of the License/Franchise Agreement;
- Copy of Trademark Registration Certificate(s);
- Notarized Power of Attorney to BNG from both franchisee and franchisor (drafted by BNG);
- Request Form for Recordal of License Agreement (provided by BNG);
- Original Signed and Notarized Extract Summary of Master Franchise Agreement (Summarized by trademark agent/professional translator which is recognized by the Ministry of Commerce); 4
- Certified copy of translation of Extract Summary of Master Franchise Agreement (Translated into Khmer language and certify by the trademark agent); and
- Extract of Company Registration from Ministry of Commerce and Patent Certificate (if the franchisee is Cambodian).
Please also be advised that the licensed trademark shall be registered in Cambodia prior to the recordation of the license agreement.
4. CONCLUSION
Despite there being no specific provision governing franchising in Cambodia, this kind of business model is considered very popular, and its use is expanding rapidly. While most Cambodians enjoy the benefits of branded goods and services, setting up a franchise is strongly recommended. To do so, the franchise agreement must comply with the rules of the license agreement, stipulated in the Trademark Law. Any franchise agreement concluded and exercised within the Kingdom of Cambodia must be in compliance with relevant laws and regulations, namely the Civil Code, the Trademark Law, the Law on Taxation and the Labour Law. It is recommended that both the franchisor and the franchisee consult with a qualified lawyer, before concluding any franchise agreement.
1 https://www.franchise.org/faqs/basics/what-is-a-franchise
2 Notification 07 dated 06 August 2015 on Recognition of Exclusive Rights on the Use of Trademark and Prokas No.0117 dated 25 June 2021 on Procedure to Certification and Recordal of
3 Prakas No.036 dated 13 January 2020 on Recordal of License and Franchise Contracts;
4 Notification No.0748 dated 12 March 2015 on Recordal of Trademark License Agreement or Franchise Agreement;
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to the Operating a Franchise in Cambodia, please contact our professionals via [email protected].
TABLE OF CONTENTS
| 1. | Introduction |
| 2. | Franchises in Cambodia |
| 3. | Requirements for Recordal / Registration |
| 4. | Conclusion |
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