Under the Ministry of Trade Regulations No. 53/M-DAG/PER/8/2012 JO and No. 57/M-DAG/PER/9/2014 Regarding to Franchise Organizers (“Law”), a Franchise is defined as a special right, owned by an individual or a business entity to a business system with a business characteristic, in order to market goods and / or services that have proven successful and can be utilized and / or used by other parties under a Franchise agreement. In order to become a Franchise Organizer, the products or the method must meet the following criteria. The Franchise must :

1. Posses a business characteristic;
2. Be proven to have been profitable;
3. Have a standard for services and goods and/or services offered in the form of writing;
4. Easy to teach and apply;
5. Offer continuous support; and
6. Own Intellectual Property Rights that have been registered.

Prior to operating a Franchise business, both the Franchisor and Franchisee are obliged to obtain a Franchise Registration Certificate issued by the Ministry of Trade department. The Franchisor is required to submit and register all of the related documents to his/her franchise business including a Prospectus (proposal) that has been translated into the Bahasa Indonesia language. A Prospectus made by other Country (other than Indonesia) is mandated to obtain Legalization from a Public Notary of the origin Country and Legalization from the Indonesia Embassy within the origin country. Moreover according to the Ministry of Foreign Affair Regulation Number 09/A/KP/XII/2006/01, in order to a foreign document to be accepted in the the jurisdiction of Indonesia, every document/letter issued or signed in foreign country must obtain prior Legalization by the Indonesia Embassy in the origin country.

We, at Schinder Law Firm, have funneled several questions regarding the acceptable parameters of the relationship between the Franchisor and the Franchisee in Indonesia. One query that often arises is to whether the Franchisor can form a joint venture company and then act as a Franchisee to accept the Franchise. According to the Law Article 7, the Franchisor is prohibited to appoint a Franchisee that possesses a controlling relationship with the Franchisor either directly or indirectly. This is to prevent unfair competition arising and to protect consumers and business. In connection to this issue, Indonesia boasts an exact regulation that can be found on the Law No.5 Year 1999 regarding the Ban on Monopolistic Practices and Unfair Business Competition.

Further questions continually surface at our firm about specific sectors, one being Food and Beverage. Indonesia has went a step further to address this sector in the Ministry of Trade regulation No. 07/M-DAG/PER/2/2013 JO No. 58/M-DAG/PER/9/2014 concerning Partnership Development in Franchising for types of Food and Beverage services (“MOT”). The types of Food and Beverage services designated consist of :

1. Restaurant;
2. Eatery;
3. Bar;
4. Cafe.

The Franchisor and Franchisee in this sector may develop its business activities through the establishment of outlets / stores that are:

1. Owned and managed (company owned outlet);
2. Franchised;
3. Operated in cooperation with a method of equity participation.

The MOT has regulated that Food and Beverage services companies that fall into the category of “Owned and managed (company owned outlet)” can only be owned up to a maximum of 250 (two hundred fifty) outlets. After reaching the 250 (two hundred fifty) outlets, the next outlet must be :

1. Franchised;
2. Operated in cooperation with the method of equity participation.

For more information regarding to franchising please contact info@schinderlawfirm.com

Written by Erick Sanjaya Perkasa, SH., M.Kn