Chapter I General Rules

Article 1 For the purpose of regulating commercial franchise, promoting the healthy and orderly development of the commercial franchise industry and maintaining the market order, the present Regulations are formulated.

Article 2 The present Regulations shall apply to the activities engaging in commercial franchise within the territory of the People's Republic of China.

Article 3 The term "commercial franchise" (hereinafter referred to as "franchise") as mentioned in the present Regulations means such business operations by which an enterprise that possesses a registered trademark, company logo, patent, know-how or any other business resource (hereinafter referred to as "franchiser") confers the aforesaid business resources to any other business operator (hereinafter referred to as "franchisee") through contract, and the franchisee conducts business operations under the uniform business model as stipulated by the contract and pay franchising fees to the franchiser.

No entity or individual other than enterprises may conduct franchise business as a franchiser.

Article 4 To engage in franchise activities, the principles of free will, fairness, honesty and good faith shall be followed.

Article 5 The commerce department under the State Council shall take charge of supervising and administrating the franchise industry all over the country in accordance with the present Regulations. The commerce department of each province, autonomous region or municipality directly under the Central Government and the commerce department of the people's governments of districted cities shall take charge of supervising and administrating the franchise industry within its own jurisdiction in accordance with the present Regulations.

Article 6 Any entity or individual is entitled to report any act in violation of the present Regulations to the commerce department, and the commerce department shall, after receiving such report, handle it promptly.

Chapter II Franchise Operations

Article 7 For engaging in franchise activities, a franchiser shall have a mature business model and be capable of providing the franchisee with consecutive business guidance, technical support, business training and other services.

A franchiser for engaging in franchise activities shall have two direct sales stores at least, and have conducted such business for more than one year.

Article 8 A franchiser shall, within 15 days after the subscription of a franchise contract for the first time, submit it to the commerce department for archival filing in accordance with the present Regulations. In case a franchiser engages in any franchise operations within the scope of a province, autonomous region or municipality directly under the Central Government, it shall report to the commerce department of the province, autonomous region or municipality directly under the Central Government for archival filling; and in case a franchiser engages in any franchise operations within the scope of two or more provinces, autonomous regions or municipalities directly under the Central Government, it shall report to the commerce department under the State Council for archival filling.

A franchiser shall, for the archival filing, submit to the commerce department the following documents and materials:

(1) A copy of the business license or enterprise registration certificate;

(2) A sample of the franchise contract;

(3) A brochure for franchise operations;

(4) A market plan;

(5) A written commitment and related certification materials testifying that the provisions in Article 7 of the present Regulations are satisfied; and

(6) Other documents and materials as prescribed by the commerce department under the State Council.

Where the product or service for franchise cannot be dealt in until it is approved, the franchiser shall also submit a related approval document.

Article 9 The commerce department shall conduct the archival filing and notify the franchiser within 10 days after its receipt of the documents and materials as provided for in Article 8 of the present Regulations. Where the documents or materials submitted by the franchiser are incomplete, the commerce department shall require the franchiser to supplement related documents or materials within seven days.

Article 10 The commerce department shall publish the name list of franchisers which have been put on archives on the government website, and timely renew the name list.

Article 11 For engaging in franchise activities, the franchiser and the franchisee shall conclude a written franchise contract.

A franchise contract shall cover the main contents as follows:

(1) Basic information in respect of the franchiser and the franchisee;

(2) Contents and term of the franchise;

(3) Type, amount and payment method for the franchising fees;

(4) Concrete contents and methods for providing business guidance, technical support, business training and other services;

(5) Quality and standards for the product or service and guaranty measures;

(6) Sales promotion, advertising and publicity in respect of the product or service;

(7) Protection of consumers' rights and interests and assumption of compensation liabilities in the franchise;

(8) Alteration, cancellation and termination of the franchise contract;

(9) Liabilities for breach of the contract;

(10) Dispute resolution methods; and

(11) Other matters as agreed upon by the franchiser and the franchisee.

Article 12 It shall be stipulated in the franchise contract concluded between the franchiser and the franchisee that the franchisee may unilaterally cancel the contract within a certain term after the franchise contract has been signed.

Article 13 Unless it is otherwise agreed by the franchisee, the franchise term as stipulated in the franchise contract may not be less than three years.

When the franchiser and the franchisee renew the franchise contract, the preceding paragraph may not apply.

Article 14 A franchiser shall provide its franchisees with a brochure for franchise operations, and shall continuously provide business guidance, technical support and business trainings, etc. to the franchisees in accordance with the stipulated contents and methods.

Article 15 The quality and standards of the product or service for franchise shall comply with the laws, administrative regulations and the related requirements of the state.

Article 16 Where a franchiser requires a franchisee to pay expenses before the subscription of the franchise contract, it shall explain to the franchisee in respect of the purposes of these expenses and the conditions and method for the refund of these expenses in written form.

Article 17 The promotion and publicity expenses as collected by a franchiser from a franchisee shall be used for the purposes as agreed upon in the contract. The information in respect of the use of promotion and publicity expenses shall be released to the franchisee in a timely manner.

A franchiser may not resort to frauds or misleading in the promotion or publicity, and the advertisements it publicized may not include any publicity content that any franchisee has gained proceeds from engaging in the franchise.

Article 18 A franchisee may not transfer the franchise to anyone else without consent of the franchiser.

A franchisee may not divulge the business secret of the