How Businesses in China Can Build a Store Licensing and Opening Sign-off Checklist Before Franchising

When turning an existing business into a franchise network, companies can easily confuse “the brand has approved the opening” with “the store can legally trade”. Licences held by company-owned stores cannot simply be assumed to cover franchise stores. Before recruiting franchisees, head office should establish a licensing and opening sign-off checklist so franchisees understand who must handle each procedure, when checks will take place and which activities cannot begin until the requirements have been met.

1. Distinguish franchise filing from store licensing

China has specific rules governing commercial franchising. Article 7 of the Regulations on the Administration of Commercial Franchising sets out requirements including a mature business model, the ability to provide ongoing support and the “two stores, one year” condition. Article 8 requires franchisors to file with the relevant authority within 15 days of entering into their first franchise agreement. It also states that, where the franchised products or services require approval by law before they can be offered, the relevant approval documents must be submitted.

These provisions do not mean that completing the franchise filing automatically authorises every franchise store to trade. Three distinct levels need to be kept separate:

• Head office’s eligibility to franchise and filing obligations: whether the company can lawfully operate as a franchisor and has met its filing obligations.
• Licensing requirements for specific business activities: assessed separately according to the products, services, operating entity and premises involved.
• The brand’s internal opening sign-off: an operational control within the franchise network, not a substitute for regulatory approval or other statutory procedures.

For example, stores selling food or providing catering services should check the food business licensing or filing requirements for their actual activities. Not all food-related activities fall under the same licensing requirement. For other activities requiring approval, requirements should also be checked with the relevant authorities where the store will operate, rather than simply copying the approach used in the location of a company-owned store.

2. Create a licensing matrix by business activity

Do not mark a store as “compliant” merely because you have collected its business licence. First list the activities the proposed franchise store will actually carry out, then identify any licences, filings or other pre-opening procedures required for each one. Registering a business scope is not a substitute for obtaining licences required by law.

The checklist should include at least the following fields:

• Business activity and specific operations, such as on-site preparation, sales of pre-packaged products or delivery.
• Name of the procedure, applicable legal basis and authority to consult.
• Applicant entity, trading address, scope of the licence and any restrictions.
• Person responsible, required documents, prerequisites and current progress.
• Document expiry dates, renewal reminders and changes that trigger further action.
• Reviewer, review date and location of supporting evidence.

Check the entity, address and scope separately. Even an authentic document submitted by a franchisee may belong to another company, relate to different premises or fail to cover the planned activities. In such cases, a verbal assurance from the franchisee is not enough to justify sign-off.

Where the applicable rules remain unclear, record the questions raised, the authority’s response and the date. Obtain professional legal advice where necessary. Keeping an item marked “to be confirmed” is more reliable than labelling an unverified requirement “not applicable”.

3. Set out responsibilities in the agreement and opening plan

Article 11 of the Regulations on the Administration of Commercial Franchising requires written agreements to cover key matters including support services, quality standards and assurance measures, and liability for breach. Responsibilities for obtaining licences should align with these provisions, rather than being negotiated on an ad hoc basis after the fit-out is complete.

The agreement or its schedules should specify which applications the franchisee must handle and which design, equipment or product documents head office will provide. They should also identify documents requiring confirmation by both parties and explain how the opening plan and related costs will be handled if an application needs correction or additional information, is delayed or is refused. Distinguish between causes such as errors in head office’s documents, late submission by the franchisee and external approval timelines, rather than imposing a blanket provision that “all losses are borne by the franchisee”.

Head office should also avoid promising to “guarantee a licence”. A more practical commitment is to specify the assistance, documents and response arrangements it will provide, while making clear that the competent authority makes the final approval decision in accordance with the law.

Work backwards from the prerequisites when planning the opening, not from a date announced in marketing materials. Where an activity legally requires a licence before it can begin, labels such as “soft opening” or “internal testing” cannot legitimise unlicensed trading with the public. If only some activities are ready to launch, confirm that they can lawfully operate on a standalone basis and restrict menus, product listings and online orders accordingly.

4. Introduce a sign-off gate and keep track of changes

Test the checklist first at a company-owned pilot store. Ask someone who was not involved in setting up the original store to use the records to assess whether it is ready to open. If they can only do so with verbal explanations from the founder, the checklist is not yet robust enough to support replication across a franchise network.

For formal sign-off, the franchisee can submit the documents, operations staff can check them against the activities the store will actually carry out, and a designated reviewer can give final confirmation. Retain copies of licences and certificates, verification records and the outcomes of any issues raised. Keeping photocopies on file is not a substitute for checking that documents remain valid. Any opening confirmation issued by the brand should state that it is an internal check and does not constitute regulatory approval.

Management must continue after opening. Adding business activities, relocating, changing the operating entity or approaching a licence expiry date should all trigger a fresh review. Systems can provide advance reminders, but “reminder sent” must not be treated as “renewal completed”. Close an outstanding task only once the relevant outcome has been obtained and verified.

Practical takeaway: Before recruiting your first franchisees, test the licensing checklist at one company-owned store. Ensure that every business activity has an assessment of the applicable requirements, a responsible person and a verification record, then roll the process out across the franchise network.