China’s ‘Two Stores, One Year’ Franchise Rule: Checking Company-Operated Outlets and Filing Records Before You Sign

When considering a franchise in China, you will often see brands promoting their official filing status and nationwide store networks. But the total number of outlets does not establish that a brand has qualifying company-operated stores, and a filing is not a certificate of investment safety. Checking the ‘two stores, one year’ requirement is not about counting outlets in a sales brochure. It means establishing which stores the franchisor operates directly or actually controls, how long they have traded, and whether the supporting evidence is consistent.

1. Distinguish the ‘two stores, one year’ requirement from filing

Article 7 of China’s Regulations on the Administration of Commercial Franchising requires a franchisor to have a mature business model and the capacity to provide ongoing operational guidance, technical support, business training and related services. It must also have at least two company-operated stores that have been operating for more than one year. This is a statutory condition for conducting franchise activities, not a recruitment standard that a brand can choose to relax.

Article 8 separately requires the franchisor to file with the competent commerce authority within 15 days of entering into its first franchise agreement. The Measures for the Administration of Commercial Franchise Filing set out further requirements for the documents and filing procedure.

The ‘two stores, one year’ requirement and franchise filing are therefore two separate checks. Filing should not be treated as an administrative licence that must be obtained before the first agreement is signed. Equally, do not accept an explanation that the company need not meet the company-operated store requirement because it is ‘still within the filing period’.

If the brand says you will be its first franchisee, ask for written confirmation of its first-contract position and filing arrangements. If it has already recruited several franchisees but no filing can be found over an extended period, request an explanation and records of the steps taken to file. In either case, verify the company-operated store requirement first, rather than paying simply because an application is said to be ‘in progress’.

2. Match each company-operated store to its operating entity

Ask the brand to identify the specific stores it relies on to demonstrate compliance with the ‘two stores, one year’ rule, rather than supplying a general nationwide outlet list. For each store, request at least its name, address, operating entity, Unified Social Credit Code, opening date and relationship to the franchisor that will sign your agreement.

Then check three areas:

• Corporate relationship: Examine business licences and company registration records to establish whether the store is a branch or is operated by a separate company. For stores run by subsidiaries or affiliated companies, investigate ownership, control and operating arrangements further.
• Operational control: Establish who signs the lease, employs staff, receives sales revenue and bears the operating profits and losses. A brand authorisation letter alone will not usually demonstrate that the franchisor operates the store directly or actually controls it.
• Store status: Ask whether there are any franchise, joint-operation, management or transfer arrangements, to avoid an ordinary franchised outlet being presented as company-operated.

The same signage, the same till system, or even family ties between shareholders cannot, on their own, establish who actually runs a store. Conversely, a different name on the store’s business licence from that of head office does not automatically mean it fails to qualify. Assess the organisational relationship alongside evidence of actual control, and seek help from the competent commerce authority or a specialist lawyer where necessary.

3. Verify trading history through operating records, not just licence dates

The establishment date on a business licence is not the same as the date a store actually opened. A company may have existed for years while its store has only just been fitted out. The company’s age alone cannot prove that the store has traded for more than a year.

Ask the brand for a connected set of supporting documents, such as leases and handover records, applicable operating permits, purchasing records from around the opening date, receipts or payment records covering continued trading, and employment records. Where trade secrets or personal information are involved, you can agree to review redacted documents or inspect them on site, but keep a checklist of what was examined and obtain written confirmation.

Focus on three questions:

1. Does the timeline hold together? Do the records cover the claimed operating period, rather than consisting only of opening-day photographs and a recent order?
2. Do the addresses match? Do the lease, permits and transaction records relate to the same store? Are there documents explaining any relocation or change of operating entity?
3. Is the business model relevant? Has the store used to demonstrate operating experience actually run the brand and business model being offered to you? If its activities differ, ask for further explanation rather than simply accepting the old store’s trading history as applicable.

A site visit can confirm that a store exists and is currently trading, but a single visit cannot establish what happened over the previous year. A well-finished interior, busy premises or verbal answers from staff are not a complete body of evidence.

4. Make the findings part of your signing conditions

When checking filing records through the commerce authorities’ public commercial franchise information channels, search against the full legal name of the company you intend to contract with, not just the brand name. Record the date of your search and check the filing entity, brand and other published information. Screenshots sent by sales staff are only a starting point.

Although filing documents include evidence relating to the ‘two stores, one year’ requirement, this does not mean the filing authority guarantees the brand’s returns or future performance of its obligations. Even where a filing exists, check that the information remains consistent with the franchise opportunity currently being offered.

An appendix to the agreement can list the company-operated stores relied on to meet the requirement, along with the names and dates of the documents supplied and a declaration that they are authentic. Set a deadline for further evidence to resolve any outstanding questions about corporate relationships or trading history. The safer approach is not to sign or make substantial payments until those questions have been resolved.

You should also distinguish regulatory breaches from civil remedies. A missing filing or failure to meet the ‘two stores, one year’ requirement does not automatically make the agreement invalid or entitle you to a full refund of franchise fees. Whether you can terminate or rescind the agreement, or claim compensation, depends on matters such as misrepresentation, its effect on your decision to contract, the contractual terms and how the agreement has been performed. These must be assessed under the Civil Code of the People’s Republic of China and the relevant franchise rules. If you have already signed, retain recruitment promises, verification documents and payment records, and do not stop all payments solely on the basis of a search result.

Practical takeaway: before signing, create a one-page checklist for each store offered as evidence, recording ‘who operates it, when it opened and what proves this’, then cross-check it against the entity named in the filing. If the entities, dates and evidence do not line up, put the investment decision on hold.