Identifying Franchise Agreements in China: Do Technical Services and Brand Partnerships Count?

When considering a franchise in China, you may be offered a ‘technical services agreement’, a ‘brand partnership agreement’ or an ‘equipment sales contract’ rather than a ‘franchise agreement’. Different titles do not necessarily mean different laws apply. The key question is whether you are buying a standalone service or entering into a broader arrangement to use brand resources and operate under a standardised business model.

1. Look at three substantive elements to identify a franchise

Article 3 of China’s Regulations on the Administration of Commercial Franchising sets out the basic structure of commercial franchising: an enterprise licenses business resources it owns to another operator, which conducts business under a standardised operating model as agreed in the contract and pays franchise fees. Assessing whether an agreement constitutes franchising requires examining these three elements, not simply its cover page.

What business resources are being provided? Ask the other party to list the registered trade marks, corporate logos, patents, proprietary know-how and other resources you may use, together with the permitted uses. The absence of an express ‘trade mark licence’ clause does not necessarily mean that no business resources are being licensed. Equally, ordinary teaching or training should not automatically be treated as franchising.

Is a standardised operating model required? Check whether the outlet must follow uniform requirements for products, service procedures, visual identity or operating manuals, and whether the brand owner provides ongoing inspections and operational guidance. A single recommendation about shop fit-out will not usually be enough to determine the arrangement’s legal nature; the overall control and support arrangements must be considered.

What are the payments actually for? Do not just check whether there is a ‘franchise fee’. Examine how technical service fees, brand usage fees, management fees and other payments relate to the licence and operational support. Renaming a fee does not, in itself, change the nature of the transaction.

These three elements should be assessed together. Ordinary supply arrangements, one-off training and standalone trade mark licences do not automatically constitute franchising.

2. Review separate agreements together

A common difficulty arises when a brand owner divides one commercial arrangement across several documents: one for equipment purchases, another for technical training, and a third setting out shop appearance and operating standards. Reading any one of these in isolation may obscure the full transaction.

Before signing, review the main contracts, appendices, fee schedules, operating manuals and promises made during franchise recruitment together. Create a ‘rights–obligations–fees’ comparison table and work through the following questions:

• Can you obtain the brand licence without buying the equipment or paying the technical service fee?
• After training ends, must you still submit to ongoing management and inspections?
• Once the brand licence ends, can the equipment, systems and technical services still be used independently?
• Who signs each agreement, who receives payment and who is responsible for performance?

Ask the other party to explain these relationships in writing. Where several companies sign agreements or collect payments, do not assume that ‘head office’ is responsible for all of them. Each party’s obligations, the links between agreements and the consequences of non-performance should be clearly documented.

For example, buying general-purpose equipment and receiving one-off training in its use may simply be a sales and services arrangement. If the relationship also requires you to use a specified brand, follow a standardised operating model and pay associated fees, further assessment is needed to establish whether it constitutes franchising. The description ‘equipment payment’ on a receipt cannot, by itself, distinguish between the two.

3. Renaming a contract does not automatically remove statutory obligations

China has specific rules governing commercial franchising, including the Regulations on the Administration of Commercial Franchising, the Measures for the Administration of Information Disclosure in Commercial Franchising and the Measures for the Administration of Commercial Franchise Filing. Contractual relationships are also governed by the Civil Code of the People’s Republic of China and other applicable laws.

If the substance of a transaction amounts to franchising, the brand owner cannot automatically exclude the relevant rules simply by stating that ‘both parties confirm that this is not a franchise agreement’. Before signing, check at least the following:

• Written contract: Article 11 of the Regulations requires a franchise agreement to be concluded in writing and to set out key terms, including fees, support services, variation and termination, and liability for breach.
• Pre-contract disclosure: The brand owner must provide the prescribed information and a copy of the contract in writing at least 30 days before signing. Claiming that ‘technical service projects do not require disclosure’ is no substitute for compliance.
• Termination arrangements: The contract must provide for a period after signing during which the franchisee may terminate it unilaterally. The agreement’s title is no substitute for checking this right.
• Filing obligation: The brand owner must complete the required filing within 15 days of entering into its first franchise agreement. Filing is not a guarantee of investment returns or contractual performance.

Conversely, finding that an arrangement constitutes franchising does not mean the contract is necessarily invalid or that all fees must automatically be refunded. Different breaches have different legal consequences. Termination, repayment and compensation must still be assessed against the specific facts.

4. Document the substance of the transaction before paying

Send the brand owner a written checklist asking which resources you may use, which operating standards you must follow, what rights each payment secures, who provides support and whether the agreements depend on one another. Key answers should be incorporated into the contract or an appendix signed by a duly authorised party, rather than left as oral explanations from recruitment staff.

Keep complete versions of the agreements, payment records, recruitment materials, and notices and correspondence requiring standardised operations. Preserve electronic records in their original form and with their surrounding context, rather than keeping only a few cropped screenshots.

If the other party requires consistent use of its brand and compliance with its management requirements while insisting that ‘this is not a franchise, so disclosure is unnecessary’, pause payment and ask a lawyer familiar with franchising to review the overall transaction. If you have already paid, do not simply stop further payments or remove the branding on the basis of your own assessment. Review the contractual terms and evidence first.

Practical takeaway: examine the resources, operating model and fees before the contract’s title. Reviewing separate agreements together and turning oral promises into written obligations are among the most effective steps you can take before signing to establish the true nature of the arrangement.