An Overview of Government Regulation Concerning Franchise in Indonesia

Franchise in Indonesia is governed by Government Regulation Number 42 of Year 2007 Concerning Franchise. Refereed to such regulation, the franchise is a special right obtained by a person or corporation toward a business system which shall meet the unique characteristic in order to market the proven succeed goods and/or services and can be taken advantage and or utilized by the other parties regarding The Franchise Agreement

For the above characteristic, the franchise has special requirements that shall not be owned by the other form of business activity. The unique characteristic shall fulfill the following criteria:
• Own unique characteristic form of business
• Proven to gain advantages
• Own standard for services on goods and/or services offered which conduct in written
• Easy to be taught and applied
• Registered Intellectual Property Rights

In above provisions, clearly, that to obtain franchise must regard to the franchise agreement. If we have plans to get the foreign franchise, such agreement shall be form in bahasa as refereed to article 4 verse (2) Franchise Regulation. In case that agreement takes form in foreign language, it must be translated into bahasa.



Franchise agreement shall involve at least two parties. First, it is named franchisor-the person or corporation that shall grant rights to take advantage of and/or use the ownership of franchise to the franchisee. Second, it is refereed to franchisee-the person or corporation to take advantage of and/or use franchise owned by the franchisor.

Government regulation stated that at least franchise agreement has following clauses:
• Name and address the parties
• The variety of Intellectual Property Rights
• The business activity
• Rights and Obligations the parties
• Supporting, facility, operational supervision, training and marketing granted by the franchisor to the franchisee
• The business regional
• The period of time agreement
• The procedure to pay recompense
• The ownership, transfer of ownership, and heir’s rights
• The dispute settlement
• The procedure to terminate and extent the agreement

For your information, franchise agreement shall be registered to the Ministry of Law and Human Rights of the Republic of Indonesia. The obligation to register if shall not obey; administrative sanction taken form in penalty will be imposed to both franchisor and franchisee after the authority has issued The Third Warning Letter. Such penalty granted maximum at IDR 100,000,000.

Franchisor used to give the prospectus prior to grant the franchisee the rights to own the franchise. According to the government regulation, the prospectus shall contain:
• The history of business activity
• The organization structure of franchisor
• The financial reports at the latest within 2 years
• The amount of business place
• The list of franchisees
• The rights and obligation franchisee and franchisor

Franchisor also shall engage to give assistance in form of training, operational supervision, management, marketing, research, and development gradually to the franchisee