Franchising in Taiwan: Defining Protected Territories and Limits on Same-Brand Expansion

When opening an existing business to franchising, “we won’t open another outlet nearby” can easily become a recruitment promise without an enforceable definition. How far does “nearby” extend? Do company-owned outlets count? Can delivery orders cross territorial boundaries? Territorial protection shapes franchisees’ investment decisions and affects the franchisor’s future expansion. To build a stable franchise network, define the boundaries before making promises to applicants.

1. Distinguish disclosure from exclusive territorial rights

Taiwan does not regulate franchise relationships through a single dedicated franchise law. However, franchise recruitment is subject to general legislation, including the Fair Trade Act, while contractual rights and obligations also fall under the Civil Code. The Fair Trade Commission has issued its Disposal Directions (Guidelines) on the Business Practices of Franchisors, which set out specific requirements for franchise disclosure and contracting procedures.

One key disclosure item concerns operating proposals or planned outlets within the same franchise system in the area where the franchise outlet will operate. Franchisors cannot simply show applicants their existing outlets while withholding plans for nearby outlets under the same brand.

Under the guidelines, the relevant information should be provided ten days before entering into a franchise relationship or a preliminary franchise relationship, within a period considered reasonable in the circumstances, or within a period agreed by both parties. Failure to provide it without proper justification may breach Article 25 of the Fair Trade Act if it is sufficient to affect trading order. This is a disclosure requirement; it does not mean that the law automatically grants every franchise outlet an exclusive territory.

Franchisors must therefore answer two separate questions: what expansion is planned nearby, and what exactly does the contract promise the franchisor will not do? Even under a non-exclusive arrangement, saying “there is no territorial protection” is no substitute for disclosing known plans.

2. Define the territory in a verifiable contract schedule

“We will not authorise another outlet in the same area” is not enough. Administrative districts may be too large, while pedestrian catchment areas can be affected by railway lines, rivers, shopping centre entrances and major roads. Franchisors should first test the proposed boundaries against existing outlets’ customer origins, trading patterns and delivery activity, then choose a method of definition that can be checked clearly.

Options include an area enclosed by named streets, a map with marked boundaries, or a specified centre point and distance. If using distance, state whether this means straight-line or road distance, and whether it is measured from the outlet entrance or another point. Maps should carry a version date, and the contract should explain how discrepancies between the map and the written description will be resolved.

The contract schedule should answer at least the following:

• Which operators are covered? Does the restriction apply only to new franchise outlets, or also to company-owned outlets operated by the franchisor and its affiliates?
• Which outlet formats are covered? Are high-street premises, shopping centre concessions, pop-ups and delivery-only sites included?
• When does protection apply? Does it begin on signing, site approval or the official opening date?
• How are boundary cases handled? What happens if an outlet straddles a boundary, a shopping centre adds an entrance or an existing outlet relocates?

Exceptions must be specific. If outlets in transport hubs or department stores are exempt, state this in advance. A franchisor should not advertise an “exclusive territory” while reserving the right to add any outlet format at any time.

3. Address delivery, online orders and customers from other territories separately

Protection against new physical outlets is not the same as exclusive access to customers. Customers may choose to visit another outlet, and delivery platforms may display several outlets under the same brand according to delivery capacity, opening hours and platform settings. Franchisors should not present customer movements they cannot control as something they can guarantee.

A more workable approach is to treat physical outlets, the franchisor’s own ordering channels and third-party platforms separately. Physical outlets can be assessed against the territory schedule. For online orders within the franchisor’s control, specify allocation criteria such as delivery address, order-handling capacity, stock availability and customer choice. Where the franchisor cannot unilaterally determine a third-party platform’s coverage, explain those limitations clearly.

For example, Outlet A may sit within a protected territory, but a customer choosing to collect from Outlet B through the franchisor’s website does not necessarily mean that the franchisor has opened another outlet in Outlet A’s territory. By contrast, adding a delivery-only site within that territory could engage the existing protection commitment. These scenarios should be tested individually before signing, rather than explained only after orders have been lost.

Any separate restrictions on franchisees delivering across boundaries, soliciting customers or accepting orders should be reviewed by Taiwanese legal advisers. Do not assume that a restriction is lawful simply because it is labelled “territorial protection”.

4. Introduce a commitments check before approving new outlets

Territorial arrangements must extend beyond recruitment documents. Before approving any new site, a designated person should check existing franchise agreements, territory schedules, exceptions and site commitments under negotiation. This helps prevent different recruitment staff from promising the same area to two applicants.

Maintain a territory register recording each area’s protection status, effective period, relevant outlets and expansion plans already disclosed to applicants. For projects that are not yet finalised, distinguish clearly between “under assessment”, “lease negotiations in progress” and “confirmed”, and date the information. Do not present a tentative proposal as a definite opening, or describe a plan that has made substantive progress as though nothing is being arranged.

If a new plan conflicts with existing protection, complete any consent or variation procedure required by the original contract before making lease or recruitment commitments. Where a franchisee raises a concern about territorial encroachment, ask both sides to check the facts using maps, addresses, outlet formats and ordering channels. Keep a written record of the outcome rather than closing the matter with “it probably won’t affect your business”.

Practical takeaway: Before offering franchises, prepare a territory map, a list of protections and exceptions, and a verification step within the new-outlet approval process. By promising only what they can control and deliver, franchisors can preserve reasonable scope for expansion while maintaining trust across the franchise network.