Launching a Franchise in Taiwan: Setting Early-Franchisee Incentives and Rules for Differential Treatment

When expanding an existing business into a franchise network in Taiwan, a franchisor may want to attract its first partners through reduced or waived franchise fees, extra training or help with opening their outlets. However, operating under the same brand does not mean that every franchisee must receive identical terms. The key questions are whether differences have a reasonable basis and whether the franchisor can explain them clearly. This article focuses on incentives for early franchisees and how to prevent ad hoc concessions from becoming lasting, unfair arrangements.

1. Distinguish reasonable differences from legal risks

Taiwan has no dedicated franchise law comprehensively governing franchise relationships, but that does not mean the sector is unregulated. Franchise agreements are generally subject to the Civil Code, while recruitment information and trading practices also fall within the scope of the Fair Trade Act. The Fair Trade Commission has also issued its Disposal Directions (Guidelines) on the Business Practices of Franchisors, covering disclosure of important franchise information, contract review and related trading practices.

Article 20, subparagraph 2 of the Fair Trade Act addresses differential treatment of other businesses without proper justification where this is likely to restrict competition. Accordingly, charging different franchisees different fees is not automatically unlawful simply because the prices differ. The reasons for the difference, the terms of the transaction and the effect on competition still need to be considered. Equally, a franchisor cannot explain every instance of differential treatment merely by saying that everyone signed voluntarily.

Extra pilot work undertaken by early franchisees, or different support needs for different outlet formats, can provide a starting point for assessing differences in treatment. They do not, however, guarantee that an arrangement is lawful. In particular, if an incentive comes with exclusive purchasing obligations or other restrictions, the necessity of those restrictions should be assessed separately. Presenting them as part of an incentive does not remove the risk.

2. Turn ‘joining early’ into objective eligibility criteria

First, set out what the incentive is intended to achieve, then decide who qualifies. For example, if the franchisor needs its first outlets to help test training procedures, it should specify the additional work involved rather than make a vague claim that early franchisees face greater difficulties.

An internal incentive policy should include at least:

• Purpose: Is the incentive compensation for pilot work, or a time-limited recruitment promotion? Do not conflate the two.
• Eligibility: Specify eligible outlet formats, the recruitment period, the number of places available and the event used to determine priority.
• Benefits: State which fees are reduced or waived, what additional support is offered and any exclusions.
• Additional responsibilities: These might include submitting test records or taking part in process reviews. Define the scope of the work.
• End conditions: Explain when the incentive ends and what happens if an outlet does not open or a franchisee withdraws from the pilot.

If only a few places are available, use a consistent system for allocating them and managing a waiting list. Do not allow individual recruitment staff to decide for themselves what counts as the ‘first cohort’. Nor should unverifiable claims about the last remaining place be used to pressure applicants into signing.

Apply the same criteria to applicants in comparable circumstances. If an exception is made, record the actual differences that justify it. Simply writing ‘strategic considerations’ will not give future managers enough information to understand the decision.

3. Explain the obligations alongside the benefits

An incentive should not appear only in the recruitment presentation while the associated responsibilities are buried in the operations manual. Franchisees need to know what they will receive, what they must contribute and what fees they will face once the incentive ends.

Under the Fair Trade Commission’s franchise guidelines, important information includes fees payable before and during operation, business support and franchise restrictions. If an early-franchisee incentive changes any of these matters, it should be included in the applicable disclosure and review arrangements before the franchise relationship is established. An incentive deadline must not replace the normal procedures.

Consider preparing a one-page confirmation sheet for each incentive arrangement and setting out the following in the contract attachments:

• The standard fees, the actual incentive and how it is calculated;
• Whether it is a one-off reduction or waiver, or a time-limited arrangement;
• The fees that will apply afterwards, or how they will be calculated;
• Whether it can be combined with other incentives;
• The completion criteria for additional work and how completion will be confirmed.

For example, if training fees are reduced or waived in return for extra pilot work, specify the records required, submission deadlines and the support the franchisor will provide. If failure to complete the work could lead to fees being recovered, the triggers and calculation basis must also be stated in advance. The franchisor should not be left to decide unilaterally, after the event, to recover the full value of the incentive.

All external documents should be consistent. If recruitment staff promise additional support, someone with the appropriate authority should confirm it and ensure it is documented, rather than leaving a gap between a verbal promise and what the contract recognises.

4. Keep approval records rather than insisting on identical prices

A franchisor can maintain an incentive register recording eligibility, reasons for approval, costs, associated responsibilities and the validity period. Finance staff should confirm affordability, operations staff should confirm that the promised support can be delivered, and legal advisers should review more complex restrictions.

Before launching the franchise offering, test the policy against a few scenarios. How will applicants who apply on the same day be ranked? Will an eligible applicant lose the incentive if their opening is delayed by the franchisor? Is there a consistent approach when existing franchisees undertake the same pilot work? These questions are easier to resolve in advance than through case-by-case negotiations later.

When franchisees ask about other people’s terms, the franchisor can explain eligibility categories, applicable periods and the reasons for differences without disclosing anyone else’s full contract. The aim is to help the franchise network understand the rules, not to reveal every detail of individual commercial arrangements.

Review regularly whether the incentives are still needed. If the supposed pilot work has long since ended but incentives continue to be offered only to particular people, reassess the justification. Where an incentive is already included in a contract, it cannot simply be withdrawn unilaterally because an internal policy has changed.

Practical takeaway: Before introducing incentives for early franchisees, prepare the eligibility criteria, incentive confirmation sheet and approval records. Every difference should have an explainable reason, supporting documentation and a rationale that can be communicated consistently to franchisees in comparable circumstances.