Identifying the Franchisor Before Offering a Franchise

An established business often uses several identities at once: a brand name at its outlets, the owner’s name on its bank account and a company name on its business licences. Before offering the business to prospective franchisees, establish who will actually be the franchisor. In franchising, clarity about this party helps establish who grants the rights, receives payments and is responsible for meeting the obligations in the agreement.

1. Distinguish between the brand, the owner and the contracting party

A brand name is no substitute for the identity of the party entering into an agreement. An outlet may be known by one trading name, while its business is operated by an individual or a business entity under a different name. Nor is the business founder necessarily authorised to sign every document on the company’s behalf.

Indonesia’s Government Regulation No. 35 of 2024 on Franchising is the main regulatory basis for franchise operations, replacing Government Regulation No. 42 of 2007. This framework recognises operators that are either individuals or business entities. Do not therefore assume that every franchisor must be a PT, an Indonesian limited liability company. Equally, do not describe a CV, an Indonesian limited partnership, as a legal entity: it is a business entity without separate legal personality.

The choice of business structure should take account of liability, governance, taxation and growth plans. Identifying the franchisor is not simply a matter of choosing the most appealing name for the offer documents.

Start by preparing an identity sheet that records:

• The full name of the individual or business entity that will be the franchisor.
• Its address and business licensing details.
• Its business structure and relevant formation documents and amendments.
• Its management or the parties authorised to represent it.
• Its relationship with the business that has been operating the outlets to date.

Use this sheet as a shared reference for the legal, finance and franchise development teams.

2. Make sure the party can deliver on its promises

The franchisor must have a clear basis for granting the rights and fulfilling the obligations it offers. Problems can arise when the company selling the franchise package differs from the company operating the outlets, and the relationship between them rests only on a verbal agreement between their owners.

Imagine that PT A operates the outlets, but the founder sets up PT B to offer franchises. PT B cannot automatically treat PT A’s operating experience, resources or proprietary rights as its own. That relationship needs to be reviewed and properly structured before any offer is made.

Draw up a simple responsibility map. Who provides the trainers? Who grants access to the systems? Who pays the support team? If resources come from another company, make sure written arrangements are in place that allow obligations to franchisees to be met.

Government Regulation No. 35 of 2024 requires a business system, a business that has already generated profits, recorded or registered intellectual property, and ongoing support. Setting up a new company does not, in itself, demonstrate that these criteria have been met. If a business is split or transferred, seek a legal review of how the rights, operations and evidence of compliance with these criteria relate to the party that will offer the franchise.

The aim is not to create more companies, but to avoid naming a franchisor in the contract that lacks sufficient control to fulfil its obligations.

3. Check authority before accepting a signature

A job title on a business card is not enough to prove authority to represent a business entity. Titles such as founder, owner or head of business development must be distinguished from the legal authority to bind the company.

Check the formation documents, the latest amendments, the composition of management and the rules on representation. For a PT, examine the directors’ powers and any restrictions or approvals required by the articles of association. For a CV, check who is authorised to manage and represent it under its deed and the applicable rules.

If the signatory is acting under a power of attorney, make sure its scope covers the action being taken. Authority to market an offer does not necessarily include authority to sign an agreement or receive payments.

Also establish internal checks before documents are sent out:

• Does the party’s name match its legal documentation?
• Does the signatory still hold the relevant position?
• Have the necessary internal approvals been obtained?
• Is the power of attorney valid and sufficiently specific?

Keep evidence of these checks with the agreement file. The same process should also be applied to prospective franchisees, while keeping it distinct from an assessment of their commercial suitability.

4. Align identities across documents and payments

The franchisor’s identity should be consistent across the prospectus, agreement, registration documents, invoices and payment instructions. Consistency does not mean that every document should use the brand as the contracting party’s name. Rather, the legal name must be clearly distinguished from the brand.

Government Regulation No. 35 of 2024 requires the franchisor to hold a Franchise Registration Certificate (STPW) before entering into a franchise agreement. The prospectus must also be provided to the prospective franchisee at least 14 calendar days before signing. Make sure the party introduced to prospective franchisees is the same party that will bear the contractual obligations.

As an internal control, use a bank account in the name of the party entitled to receive payment. If another party handles billing, explain the basis of its authority, who ultimately receives the payment and what evidence confirms that the payment obligation has been discharged. Avoid informal instructions to transfer money to an employee’s personal account.

Practical step: before launching the offer, bring together the identity sheet, evidence of authority, responsibility map and sample payment instructions in a single review file. Postpone signing if it remains unclear who grants the rights and who is obliged to deliver on the promises made to franchisees.