Franchising in Taiwan: Setting Rules for a Shared Marketing Fund’s Use, Audit and Unspent Balances

If you are preparing to franchise an existing business in Taiwan, you may want to pool resources across outlets to pay for brand advertising, photography and promotional materials. But a ‘shared marketing fee’ should be more than a label on an invoice. Franchisees need to know where the money goes, who approves spending and what happens to any unspent funds. Clear fund-management rules help reduce concerns within the franchise network about how the money is used.

1. Define what the shared marketing fee pays for

The first step is not to decide how much to charge, but to distinguish between three types of expenditure: the franchisor’s day-to-day operating costs, brand promotion that benefits the whole network, and local marketing chosen by individual outlets. If these are mixed together, even having invoices may not be enough to demonstrate that the charges are reasonable.

Start by drawing up a list specifying whether each type of expense can be paid from the fund:

• Brand advertising, shared product photographs and promotional materials: define the scope of production, advertising placement and permitted use under any licences.
• Salaries for the franchisor’s marketing staff and administrative costs: if these are to be shared, explain the calculation method in advance rather than adding them later as management fees.
• Individual outlet launch events: explain whether the outlet pays or whether a fund contribution is available when specified conditions are met.
• Franchise recruitment advertising: this serves a different purpose from attracting customers to outlets and should not be assumed to qualify for payment from the shared marketing fund.

If the franchisor is actually providing a fixed package of marketing services and retaining any surplus fees, name and describe the arrangement accordingly. Do not call it a ‘shared fund’ while implying that every contribution will go directly towards advertising. The documentation should also explain whether the fund is simply earmarked within the internal accounts, held in a separate bank account or subject to another legal arrangement. Separate bookkeeping does not, by itself, create a trust or legally ring-fence the assets.

2. Include permitted uses and restrictions in pre-contract information

Taiwan does not have a single dedicated franchise law governing franchise agreements, but that does not mean franchising is unregulated. The Taiwan Fair Trade Commission’s guidelines for handling cases concerning franchisors’ business practices are an important basis for administrative enforcement. They address disclosure of material transaction information, including fees payable before opening and during operations.

As shared marketing fees are a cost borne by franchisees, the franchisor should clearly disclose the amount or calculation method, collection arrangements and relevant conditions before the agreement is entered into. Concealing material information may engage Article 25 of the Fair Trade Act if it amounts to deceptive or obviously unfair conduct sufficient to affect trading order. Not every omission in the documentation automatically constitutes a breach of the law. Contractual rights, obligations and performance disputes must still be assessed under general laws, including Taiwan’s Civil Code.

In practice, the information should answer at least the following questions: When does a new outlet start paying? Are payments still due during a temporary closure? Do company-owned outlets contribute on the same basis? If fees are calculated as a percentage of turnover, how are refunds and platform transactions treated? Can additional charges be imposed if the fund runs short?

Avoid simply stating that ‘the franchisor may make adjustments as necessary’. A more robust approach is to specify in advance the conditions for adjustments, the notice procedure and any consent required. Ensure that the disclosure documents, agreement and statements made by recruitment staff are consistent.

3. Establish budgeting, approval and inspection procedures

Before offering franchises, test the full process through a marketing campaign at a company-owned outlet: propose a budget, approve suppliers, confirm deliverables, make payments and review the results. This tests whether the franchisor can manage pooled funds, rather than merely produce advertisements.

For each expense, retain a record of its purpose, the relevant campaign, the supplier, the person approving it, the invoice or other supporting documentation, and evidence of delivery. Where a company connected to the franchisor provides photography, design or advertising services, disclose the relationship and the basis for pricing. This helps prevent internal profit margins from being hidden within costs presented as payments made on franchisees’ behalf.

Reports to franchisees can include the opening balance, receipts during the reporting period, expenditure broken down by campaign, committed but unpaid amounts, and the closing balance. Reporting frequency should reflect the franchisor’s capacity: if quarterly reports are promised, allocate enough staff time to produce them on schedule.

Inspection rights also need workable procedures. Specify whom franchisees should contact, which supporting records they may inspect, how other outlets’ commercially sensitive information will be redacted, and who will review any discrepancies. If an external accountant’s examination is promised, explain its scope and how it will be paid for. An internal bookkeeping review should not be presented as an independent audit.

4. Plan for differences in benefit and the treatment of unspent balances

Brand promotion cannot give every outlet exactly the same exposure. The franchisor should explain its allocation principles, such as distributing resources by region, outlet numbers or campaign needs, rather than promising identical sales growth for every outlet. For areas not yet covered, outline plans for the next phase, but do not present unapproved arrangements as guarantees.

The agreement should also address unspent funds and committed expenditure. Can balances be carried forward? How will refunds from cancelled campaigns be recorded? Are contributions refundable when a franchisee leaves the network? How will unused funds be settled if the brand ceases trading? These matters should be agreed in advance to reflect the actual arrangement. Do not assume that all funds must be refunded or that the franchisor may automatically retain everything.

Finally, report financial accountability separately from marketing performance. Supporting documents show that expenditure has been recorded; data on exposure, enquiries and redemptions helps assess whether a campaign is worth continuing. Do not attribute an entire one-off increase in turnover to advertising, or describe marketing fees as a guarantee of returns.

Practical takeaway: before collecting the first shared marketing fee, complete the permitted-use list, reporting template and clauses governing unspent balances. A sound collective investment starts with commitments franchisees can understand and expenditure they can verify.