Buying a Franchise: Check the Limits of Confidentiality Obligations

Before buying a franchise in Indonesia, you may be asked to sign a confidentiality agreement to gain access to business information. This can be a reasonable request, but you should check its scope before agreeing. In franchising, protecting recipes and business systems should go hand in hand with giving prospective partners a fair opportunity to assess the offer. The key questions are not simply whether information may be shared, but with whom, for what purpose and for how long the obligations apply.

1. Distinguish between protecting information and restricting due diligence

A confidentiality agreement may be a standalone document signed before the franchise agreement, or form part of the main contract. Do not assume a preliminary document is non-binding simply because you have not yet bought the franchise package. Check when the obligations take effect and whether they continue if negotiations end.

Indonesia has specific franchise legislation: Government Regulation No. 35 of 2024 on Franchising. This requires franchisors to provide a Franchise Offering Prospectus to prospective franchisees at least 14 calendar days before the Franchise Agreement is signed. The franchise agreement must also place the parties on an equal legal footing and be governed by Indonesian law.

Confidentiality obligations do not replace the requirement to provide that prospectus. If you are asked to sign the main contract before receiving the mandatory information on the grounds that the documents are confidential, ask for the process to be corrected.

Alongside these specific rules, the requirements for a valid agreement under Article 1320 of the Indonesian Civil Code and the binding force of valid agreements under Article 1338 remain relevant. Treat a confidentiality document as a legal commitment, not an administrative formality.

2. Define the information that genuinely needs protection

A clause covering “all information about the business” without further explanation can lead to conflicting interpretations. Ask for reasonably clear categories, such as unpublished recipes, internal operations manuals, supplier pricing details or unannounced product launch plans.

Also check how confidential information is identified. Must it be specifically marked? What about information shared verbally in meetings? For oral disclosures, you could propose written confirmation so that both parties have the same record.

Propose exceptions for information that:

• Is already lawfully available to the public, other than through a breach by you.
• Was lawfully in your possession before the franchisor disclosed it.
• Was lawfully obtained from another party who was not prohibited from disclosing it.
• Was developed independently without using the franchisor’s confidential information.

These exceptions need to be negotiated; they are not rights automatically included in every contract. Keep evidence of where information came from in case it is needed later.

Also distinguish an obligation to maintain confidentiality from a ban on expressing any assessment of the brand. They are different. An overly broad clause should not prevent you from communicating facts to legal advisers or the relevant authorities through lawful channels.

3. Ensure your advisers can help assess the offer

Due diligence before buying often requires help from a solicitor or other lawyer, an accountant, or a prospective lender. If the contract prohibits disclosure to all third parties without exception, obtaining an independent assessment may be difficult.

Ask for a mechanism allowing limited disclosure to those who genuinely need the information to assess the transaction. Specify who may receive it, the permitted purpose and the confidentiality obligations that apply to them. If written consent is required, agree on the procedure and response times so that due diligence is not left on hold indefinitely.

For example, an accountant may need to see cost breakdowns and sales assumptions, but not a complete recipe. A lawyer needs the contractual documents, not unrestricted access to the entire business system. The principle is to share only as much information as is needed.

Also check for exceptions covering disclosures required by law or lawfully requested by a court or competent authority. If you must notify the franchisor beforehand, ensure this requirement applies only where such notification is legally permitted.

4. Clarify duration, deletion and the consequences of a breach

Do not stop at the definition of confidential information. Check what happens if you decide not to proceed with the purchase or the franchise relationship ends. Distinguish the term of the agreement from the duration of the confidentiality obligation for each category of information. Information that remains confidential may need different protection from offering materials that are later made public.

Ask whether documents must be returned, destroyed or deleted, including copies in emails and shared storage. Propose limited exceptions for records that must be retained by law or are needed as evidence, with confidentiality obligations continuing to apply.

Read the consequences of a breach carefully: is there a fixed penalty, provision for additional damages claims, or liability for your advisers’ actions? Do not assume every provision is automatically reasonable. Ask a lawyer to assess the scope of liability, the basis for claims and the risk of overlapping penalties or remedies.

Practical step: before signing, make sure four points are clearly set out in writing: the information protected, who may receive it, how long the obligations last and the consequences of a breach. If any of these is unclear, ask for amendments before accepting or sharing sensitive documents.