Business overviewTypes of vehicle
What forms of business entities are relevant to the typical franchisor?
A franchise agreement in Thailand is simply a contract governing rights and duties between parties. Therefore, almost all forms of business entities could be relevant to a franchisor. Nevertheless, the most typical choice of business entity for a franchisor in Thailand is a limited liability company (private or public).
For a public limited liability company, it is generally preferable for a large-scale business requiring investment from the public to list its stocks for sale on the Thai stock market. A private limited liability company is more suited for a medium-sized or small franchise business since there will be fewer restrictions and statutory compliance requirements compared with establishing a public limited liability company. In addition, Thai law endorses the concept of ‘corporate veil’, which is that shareholders are only liable for the company’s debt only up to the amount they have invested into the company.Regulation of business formation
What laws and agencies govern the formation of business entities?
As Thailand is a civil law jurisdiction, the Civil and Commercial Code (CCC) is the main source of law that governs the formation of business entities in Thailand. The relevant agency for the formation of entities is the Thai Ministry of Commerce (MOC). For a foreign investor, the Foreign Business Act of 1999 (FBA) is also relevant as it generally governs foreign-owned businesses in Thailand. If the structure is in the form of a public limited liability company, the Public Company Act of 1992 will also be applicable.Requirements for forming a business
Provide an overview of the requirements for forming and maintaining a business entity.
The specific requirements for forming and maintaining a business entity depend on the type of business entity, whether it is public or private and whether it is owned by Thai nationals or foreigners.
For a private limited company, which is the most common type of business entity, the minimum number of shareholders required is three persons, and at least one director is appointed. The minimum paid-up capital in a private limited company is 25 per cent of par value. The minimum par value of a share is 5 baht.
To maintain the status as a private limited company, at least the following must occur: (i) an annual general meeting of shareholders must be held at least once a year; (ii) an audited financial statement and an up-to-date list of shareholders must be filed annually; and (iii) a tax return (a half-year income tax return and an annual income tax return) must be filed every six months.Restrictions on foreign investors
What restrictions apply to foreign business entities and foreign investment?
Under the FBA, if a company is fully owned or majority-owned by foreigners (ie, not Thai nationals under the FBA), the types of businesses it can conduct in Thailand is restricted (eg, the company cannot operate a newspaper or radio station, engage in certain types of farming or operate a business involving national security, natural resources or arts, culture and traditional customs without receiving prior approval from the government). Further, under the FBA, a foreign-owned company, or a company where the majority ownership belongs to foreigners (including a foreign-owned company), is permitted to conduct franchising business activities only after it has obtained the applicable foreign business licences or foreign business certificates from the MOC.
The approval of a foreign business licence is at the discretion of the MOC and is evaluated on a case-by-case basis. Based on past experience, the MOC would pay particular attention to the effect of the business conducted by the foreigners on:
- national security;
- development of the national economy and society of the country;
- Thai culture and tradition;
- the preservation of the environment, energy and national resources; and
- whether the business will operate in a sector in which Thais are not ready to compete with non-Thai businesses.
The process for obtaining the foreign business licence is very time-consuming. It is commonly expected to take a period of at least six to 12 months, and the outcome is unpredictable.
In addition, under the Treaty of Amity and Economic Relations between Thailand and the United States of America, US nationals (US Treaty), including companies, are permitted to hold all shares or a majority share in Thai companies carrying on certain business activities that would otherwise be prohibited under the FBA (as mentioned above). A foreign business certificate is still required for a US-owned company prior to conducting business (including franchising) in Thailand and it normally takes two to five months to obtain this certificate. Thailand has also entered into other similar agreements with Australia, Japan and ASEAN. However, unlike the US Treaty, to be wholly or majority foreign-owned are more restrictive under those agreements. Under the ASEAN Framework Agreement on Services, an applicant with 70 per cent of its shares held by the shareholders holding citizenship of an ASEAN country is eligible to apply for a foreign business certificate to carry on a franchise relating to fast foods (exclusive of fast food restaurants).Taxation
Briefly describe the aspects of the tax system relevant to franchisors. How are foreign businesses and individuals taxed?
Royalties paid to franchisors are subject to income tax in Thailand. If the franchisor receiving royalties is a company incorporated under Thai law or a Thai branch of a foreign company (ie, having a permanent establishment in Thailand), the royalties are considered as assessable income of the recipient (franchisor). The assessable income will have an impact on the net profit. Generally, net profits are currently subject to 20 per cent corporate income tax. The rate may be lowered if the company is considered to be a small- or medium-sized enterprise (SME). For SMEs, the corporate tax rates are 20 per cent or 15 per cent or they could be exempted depending on the net profit figure.
If a franchisor is a foreign entity (ie, having no permanent establishment in Thailand) the franchisee is required to withhold tax at the rate of 15 per cent or at a lower rate for the paid franchise fee. This is dependent on whether there is any applicable double taxation agreement (DTA) (ie, of royalties paid to the franchisor and submitted the withheld tax to the Revenue Department).
For the income received from the sale of products or services provided by a company, the income will be considered as ‘business profit’ under the DTA. Therefore, the foreign franchisor having no permanent establishment will not be taxed for this income. However, the tax implication on marketing expense could also be imposed on the contributions made to the marketing fund, as required under the franchise agreement, and is subject to 15 per cent withholding tax according to the relevant tax ruling,
The foreign franchisor would be subject to local value added tax (VAT) at the rate of 7 per cent for its income derived from sales or services and it would be the duty of the franchisee to submit the VAT amount to the Revenue Department.Labour and employment
Are there any relevant labour and employment considerations for typical franchisors?
There are no labour or employment considerations that are specifically relevant to franchisors. Under Thai labour law, an employment relationship exists where one party (the employer) has authority and direct control and command over another party (the employee). It is, therefore, unlikely that the relationship between the franchisor and franchisee would fall under the definition of an employment relationship.
However, for clarity, the franchise agreement should specify that the relationship between the franchisor and the franchisee cannot in any way be interpreted as those of an employer and employee. Further, there should also not be any terms and conditions under the franchise agreement granting the franchisor direct control and command over the franchisee.
Another concern that may arise when entering into a franchise agreement is that the established relationship could be interpreted as an agent-principal relationship. The CCC provides that if the agent, in the course of his or her appointment, commits any wrongful act to a third party, the principal will be solely responsible or jointly liable for the agent’s act or omission. To avoid misinterpretation of the franchisor-franchisee relationship as an agent-principal relationship, an explicit statement should be made in the franchise agreement that the relationship arising from this agreement could not by any means be interpreted as an agent-principal relationship.Intellectual property
How are trademarks and know-how protected?
As in other countries, trademarks are secured to their owners once registered with the Thai authorities, as required under the Trademark Act 1991 (TA) and its amendments. The TA imposes civil and criminal penalties on those who infringe the rights of the trademark owner (eg, for unauthorised use of the trademark or use of any other trademark similar to the one that has already been registered).
The licensing of a registered trademark must be made in the form of a written licensing agreement registered with the Thai authorities. Non-compliance with this registration requirement will render the licensing void and unenforceable under Thai law. Another advantage of having a licensing agreement (either incorporated into the franchise agreement or in a separate agreement), is that restrictions regarding use of the trademark can be specifically imposed on the licensee (franchisee).
Know-how is protected under the Trade Secrets Act of 2002 (TSA). The TSA protects an individual or entity against the unauthorised disclosure of trade secrets. Further, the TSA empowers the court to order an injunction against unauthorised disclosure. Nevertheless, a franchisor must take adequate precautions with regard to its trade secrets by entering into a confidentiality agreement with a franchisee, either separately or incorporating it within the franchise agreement itself. It is only by demonstrating that such careful steps have been taken to protect trade secrets that a franchisor can be protected under the TSA. Similarly, in the draft Franchise Act, a franchisee is prohibited from revealing any information relating to the franchise that has been previously specified by the franchisor in the contract.Real estate
What are the relevant aspects of the real estate market and real estate law?
At present, there are no specific franchise or retail laws controlling franchises. However, the Town Planning Act of 1975 and its amendments and the Building Control Act of 1979 and its amendments may be relevant to franchises. This is because these acts control the size and area permissible for specific types of building including retail and wholesale stores.
Under the current draft Retail or Wholesale Act, wholesale or retail businesses would need a licence before commencing operations if they have:
- a business area of at least 1,000 square metres;
- a combined income or estimated combined sales of all branches in the previous fiscal year, or estimated earnings in the first year of business of 1 billion baht or more; or
- received consent from an operator under the first or second point above to use intellectual property or other rights at a specified location or for a specified period (ie, as a franchisee).
However, this current draft Retail Act has been pending for more than a decade and may be amended in the future to be in line with ASEAN Economic Community (AEC), in which Thailand is a party.Franchising in the market
How widespread is franchising in your jurisdiction? In which sectors is franchising common?
Franchising is considered popular in Thailand despite not having an enacted Franchise Act. The two sectors whereby franchising is most common are food and clothing industries.
Laws and agencies regulating the offer and sale of franchisesLegal definition
What is the legal definition of a franchise?
There is no specific law governing franchises in Thailand. Accordingly, there is no legal definition of ‘franchise’ under Thai law. Therefore, a franchise agreement in Thailand is simply a contract governing rights and duties between parties.
Notwithstanding the above, there is a draft Franchise Act that defines ‘franchise’ as:
(1) The operation of a business in which one party called a ‘franchisor’ agrees to let the other party, the ‘franchisee’, operate the business using the forms, systems, procedures and intellectual property rights of the franchisor or to use its rights to operate a business during a specified time or in a specified area, such operation being under the direction of the franchisor’s business plan, and the franchisee having a duty to pay the franchisor a compensation; and/or (2) other businesses specified by the ministerial regulation.
The latest draft of the Franchise Act was issued in 2016 (and not yet approved by the National Legislative Assembly); therefore, it is subject to change.Franchise laws and agencies
Which laws and government agencies regulate the offer and sale of franchises?
As there is no law that specifically regulates franchises, there are multiple sources of law that regulate the offer and sale of a franchise. This includes the following: (i) the CCC; (ii) the TA; (iii) the TSA; (iv) the FBA; (v) the Trade Competition Act 2017 (TCA); (vi) the Unfair Contract Terms Act 1997 (UCTA); and (vii) the Thai Revenue Code.
According to the draft Retail and Wholesale Act and the draft Franchise Act, the Central Commission on Retail and Wholesale Trade (Retail and Wholesale Commission) and the Central Commission on Franchise Business (Franchise Commission) will be created. The Franchise Commission will directly control the operation of franchise businesses and will regulate the details to be included or relevant to a franchise agreement. The Retail and Wholesale Commission will control the retailers or wholesalers operating in the marketplace including the expansion of stores. Notwithstanding the above, it is likely that the current draft Retail and Wholesale Act and the draft Franchise Act may be amended, or there may be new laws and regulations enforced to be in line with the AEC.Principal franchise requirements
Describe the relevant requirements of these laws and agencies.
The licensing of a registered trademark requires registration with the government agency for enforcement and the Thai Revenue Code imposes tax obligations on the franchisor. Once the draft Franchise Act comes into effect, it can be expected that certain terms and conditions may be imposed to control franchise businesses in Thailand. Under the draft Franchise Act, the franchise business performed in Thailand must be registered and the franchisor must obtain a franchise licence. The franchisor having domicile abroad, although not required to obtain such a licence, must have its franchise agreement registered with Thai authority; otherwise, it cannot be enforced under Thai law.Exemptions
What are the exemptions and exclusions from any franchise laws and regulations?
As there is no specific franchise legislation, there are no exemptions or exclusions available for a foreign franchisor. Nevertheless, the draft Franchise Act excludes franchise agreements as announced from time to time by the Minister of the MOC. Franchise agreements where the franchisor has domicile abroad also do not require a franchise licence. However, the franchisor must arrange for the registration of its franchise agreement in Thailand in order to be enforceable.Franchisor eligibility
Does any law or regulation create a requirement that must be met before a franchisor may offer franchises?
At present, there is no statutory requirement to be met by a franchisor before offering a franchise to a franchisee.
Nevertheless, according to the draft Franchise Act, to operate the franchise business in Thailand, the franchisor must duly obtain a franchise licence with the authority. To obtain a franchise licence in Thailand, if a franchisor is a juristic person, it must be: (i) a Thai majority owned company incorporated under Thai law; or (ii) a foreign entity (either as a foreign owned company (for 50 per cent or more) or a branch of its parent company) whereby a foreign business certificate or a foreign business licence is granted to the franchisor. In addition, a franchisor must meet certain eligibility qualifications supporting its application. Such qualifications include having been a ‘franchisor’ (ie, grants a franchise) for at least two years, and earning profits from two of its existing franchise locations for at least two accounting years prior to the date of filing an application for a franchise licence.
The applicant (ie, franchisor) must own or be entitled to intellectual rights that are to be used in the franchise and have its own business operation manual established in compliance with related announcements issued by the Minister. If the franchisor meets those eligibility qualifications, it can apply for a franchise licence in Thailand. Once the franchisor has obtained the franchise licence, the franchisor can franchise its business.
If the franchisor will franchise its business offshore to the franchisee in Thailand, although the franchise licence is not required, the franchise agreement must be registered with the Registrar in order to be enforceable. As a result, for the franchise agreement to be eligible for registration, the franchisor may also be required to meet certain eligibility qualifications as prescribed above.Franchisee and supplier selection
Are there any laws, regulations or government policies that restrict the manner in which a franchisor recruits franchisees or selects its or its franchisees’ suppliers?
The TCA prohibits or restricts the acts amounting to monopoly, reduction of competition or restriction of competition in the market of any particular goods or any particular services. Those acts include setting conditions or practices for purchasing or producing goods or services so that the practice follows what is agreed. However, this provision shall not apply to a franchise business. See question 45 for greater detail.Pre-contractual disclosure
What is the compliance procedure for making pre-contractual disclosure in your country? How often must the disclosures be updated?
At present, there are no regulations obligating franchisees or franchisors to disclose or continue to disclose information.
However, a franchisee could potentially seek relief for non-disclosure under the UCTA or other laws depending on the specific situation. The UCTA is protective of franchisees as it states that terms of an agreement, which is in a standard form and renders the party prescribing the contract (ie, the franchisor) an unreasonable advantage over the other party (ie, the franchisee), will be regarded as unfair terms. Therefore, they will only be enforceable only to the extent that they are considered fair and reasonable by the Thai Court. In any event, the standard form agreement will be interpreted in favour of the other party (ie, the franchisee).Pre-sale disclosure to sub-franchisees
In the case of a sub-franchising structure, who must make pre-sale disclosures to sub-franchisees? If the sub-franchisor must provide disclosure, what must be disclosed concerning the franchisor and the contractual or other relationship between the franchisor and the sub-franchisor?
Thai law does not specifically cover sub-franchising, and nor does the draft Franchise Act. Therefore, it seems likely that the same disclosure rules that apply to franchisors and franchisees will also apply in cases of sub-franchising if the draft Franchise Act is enacted.Due diligence
What due diligence should the parties undertake before entering a franchise relationship?
The normal due diligence should be done. This includes: (i) ensuring that the potential franchisee has a good standing (free from any litigation or potential litigation disputes and financial stability); (ii) analysing the business trend in the potential market whether the products or services being offered are those that are in demand; (iii) if the franchisee is to open a store, ensuring that a prime location is secured; and (iv) investigating further into the potential franchisee whether they have the capability to maintain the quality the franchisor is looking for.What must be disclosed
What information must the disclosure document contain?
Under current legislation, no specific information must be disclosed in a franchise agreement. Nevertheless, this is likely to change if the draft Franchise Act is enacted. The draft Franchise Act requires that certain information must be specified in the franchise contract. See question 44 for greater detail.
The draft Franchise Act also states that if a franchisor fails to disclose all necessary information within 60 days of the execution of the franchise agreement, the franchisee has the right to: (i) terminate the contract, (ii) no longer be bound by it and (iii) be reimbursed for all expenses and damages incurred as a result of the franchisor’s non-compliance.Continuing disclosure
Is there any obligation for continuing disclosure?
At present, there is no regulation obligating franchisees or franchisors to disclose or continue to disclose information. See question 19 for more details.Disclosure requirements – enforcement
How do the relevant government agencies enforce the disclosure requirements?
Since there is no legislation forcing specific information disclosure, no specific government agencies are responsible for enforcing disclosure requirements. Nevertheless, under the draft Franchise Act, the information to be disclosed by the franchisor must be in accordance with the details announced by the Minister of the MOC.Disclosure violations – relief for franchisees
What actions can franchisees take to obtain relief for violations of disclosure requirements? What are the legal remedies for such violations? How are damages calculated? If the franchisee can cancel or rescind the franchise contract, is the franchisee also entitled to reimbursement or damages?
Under current legislation, a franchisee would probably have to seek relief for non-disclosure under the TSA (see question 24) and the UCTA or other relevant laws depending on the specific situation.
See question 16 for more details for provisions under the UCTA and question 19 for the draft Franchise Act.Disclosure violations – apportionment of liability
In the case of sub-franchising, how is liability for disclosure violations shared between franchisor and sub-franchisor? Are individual officers, directors and employees of the franchisor or the sub-franchisor exposed to liability? If so, what liability?
The draft Franchise Act and other related laws provide no information on this issue. The disclosure obligation depends on the terms and conditions of the agreements between the parties concerned.General rules on offer and sale
In addition to any laws or government agencies that specifically regulate offering and selling franchises, what are the general principles of law that affect the offer and sale of franchises? What other regulations or government agencies or industry codes of conduct may affect the offer and sale of franchises?
The general principles of contract law and bargaining in good faith are applicable to the offer and sale of franchises. Thai Courts generally uphold contracts made between parties as long as the contract was entered into in good faith by the parties and the parties have equal bargaining power under the contract. Due to the absence of a franchise law, it is significant that the parties adhere to general principles of contract law as franchise agreements are legally the same as other kinds of contracts.
Thailand has no concept of culpa in contrahendo (ie, pre-contractual liability). Therefore, apart from the general provision (ie, acting in good faith principle), one party may claim for damages if the damage was caused by a breach of agreement (if the agreement exists) or a wrongful act committed, wilfully or negligently, by the other party under the CCC.
Nevertheless, there is no such pre-disclosure requirement under the current law in Thailand. The information to be disclosed, including related compensation for unauthorised disclosure would depend on the contractual terms (if any) made between the franchisor and the franchisee before entering into the franchise agreement.
Notwithstanding the above, in the absence of the contractual terms aforementioned, the pre-sale disclosure, if any, would still be protected under the TSA. Any infringement to the pre-sale disclosure would entitle the affected party to: (i) file a petition to the Thai court for an interim injunction; and (ii) file an action in the Thai court for a permanent injunction to stop the infringement and claim for damages from the infringing party. See questions 22 and 45 for other laws that may be relevant to a franchise agreement.General rules on pre-sale disclosure
Other than franchise-specific rules on what disclosures a franchisor should make to a potential franchisee or a franchisee should make to a sub-franchisee regarding predecessors, litigation, trademarks, fees, etc, are there any general rules on pre-sale disclosure that might apply to such transactions?
At present, there is no general rule on pre-sale disclosure or franchise-specific rules requiring a franchisor to disclose certain information or documents to a potential franchisee, or for a franchisee to disclose to a sub-franchisee. Nevertheless, the draft Franchise Act requires the disclosure of the franchisor when advertising its business to the potential franchisee. The detail of information to be disclosed will be in line with the announcement by the Minister of the MOC. See questions 16 and 21 for greater detail.Fraudulent sale
What actions may franchisees take if a franchisor engages in fraudulent or deceptive practices in connection with the offer and sale of franchises? How does this protection differ from the protection provided under franchise sales disclosure laws?
Fraudulent or deceptive practices that cause damage to the franchisee are subject to wrongful act provisions under the CCC. The wrongful act provision allows the damaged party (franchisee) to file a lawsuit against the damaging party. Nevertheless, the claim for punitive damages under wrongful act does not exist. Therefore, damages are limited to damages directly caused by the fraudulent or deceptive practices.
However, under the draft Franchise Act, the competent authority is empowered to cancel or deny the renewal of the franchisor’s licence if such fraudulent or deceptive practice is found. In this situation, the franchisee can choose to either continue or cancel the franchise agreement. If the franchisee cancels the agreement, it will not be considered a breach of agreement by the franchisee. The franchisee is also entitled to repayment of remuneration or payments previously made to the franchisor on a pro rata basis with reference to the remaining term under the franchise agreement.
Legal restrictions on franchise contracts and the relationship between the partiesFranchise relationship laws
Are there specific laws regulating the ongoing relationship between franchisor and franchisee after the franchise contract comes into effect?
Apart from the draft Franchise Act, there are no specific laws that govern the entire on-going relationship between the franchisor and franchisee after the contract comes into effect. The Thai Courts’ interpretation of the UCTA and the TCA is that after the termination of the agreement, the competition clause may survive termination for a period between two to three years depending on the jurisdiction and facts concerned. During the term of the franchise contract, if the contract is deemed a standard contract in the view of a Thai Court, certain terms unreasonably favourable to the franchisor may be considered an unfair contract term and will, therefore, be adjusted as considered fair and appropriate by the Thai Courts.Operational compliance
What mechanisms are commonly incorporated in agreements to ensure operational compliance and standards?
The law does not prohibit or restrict the franchisor from inspecting and auditing the franchisee to ensure operational compliance and standards. On the contrary, the law encourages the franchisor to ensure that the quality of the products or services provided reaches the franchisor’s satisfaction. This is evidenced by the TA even specifying that a licensor has the obligation to investigate, audit and inspect the licensee’s operation to ensure that the standards are consistent.Amendment of operational terms
May the franchisor unilaterally change operational terms and standards during the franchise relationship?
If the change is within the scope of the franchisor’s reserved right or agreed with the franchisee in the franchise agreement, there is nothing to prohibit the franchisor from unilaterally changing the operational terms and standards. However, the franchisor should be aware that under the UCTA, standard forms contracts are generally deemed unfair by the Thai Courts. Therefore, if the change clearly prescribed the franchisor with an unreasonable advantage over the franchisee, the terms may be rendered enforceable only to the extent considered reasonable by the Thai courts.
However, considering that the franchisor and franchisee are both business operators, they should be of similar standing and have equal bargaining power. If this is the case, the chance of the changed terms being rendered unfair is relatively low. Further, if the change is to ensure compliance with industry practice, there is minimal risk for franchisor to be considered liable under the UCTA.Other laws affecting franchise relations
Do other laws affect the franchise relationship?
The legislations listed in question 11 may affect the franchise relationship. However, the degree of relevance will depend on the facts.Policy affecting franchise relations
Do other government or trade association policies affect the franchise relationship?
No specific policies exist that would significantly affect the franchise relationship. Nevertheless, it should be noted that the government has a general policy of supporting agreements between private parties, including franchise agreements, because these agreements encourage economic growth and development.Termination by franchisor
In what circumstances may a franchisor terminate a franchise relationship? What are the specific legal restrictions on a franchisor’s ability to terminate a franchise relationship?
There are no specific circumstances or requirements under which a franchisor may terminate a franchise relationship. Nevertheless, if the franchisee breaches the franchise agreement, the franchisor may have the right to terminate the relationship under regular contract law. Similarly, contract law would require the franchisor to compensate the franchisee for early termination of the franchise agreement, if it is a termination without cause.
However, the draft Franchise Act contains a provision whereby the right to terminate the franchise agreement by either party must be detailed in the franchise agreement.Termination by franchisee
In what circumstances may a franchisee terminate a franchise relationship?
Current legislation provides no specific circumstances under which a franchisee can terminate a franchise agreement.
Similar to question 32, a franchisee may also terminate the franchise agreement with cause if the franchisor breaches an agreed material provision, if any, of the franchise agreement.
The draft Franchise Act allows the franchisee to terminate the franchise agreement in the following events: (i) if all necessary information has not been disclosed by the franchisor within 60 days of the execution of the agreement; (ii) when the franchisor’s business is transferred (inclusive of when there is a transfer of majority shares issued by the franchisor); or (iii) if the franchisor’s licence is cancelled or not renewed by the authority, without any fault on the part of the franchisee.Renewal
How are renewals of franchise agreements usually effected? Do formal or substantive requirements apply?
As there is no specific law governing this issue, this depends mainly on the contractual agreement between the franchisor and the franchisee.
Under the draft Franchise Act, the franchise agreement must contain certain provisions, one of which must deal with the renewal or the non-renewal of such agreement. Nonetheless, the franchise licence will be valid for five years and renewable until the Registrar objects.Refusal to renew
May a franchisor refuse to renew the franchise agreement with a franchisee? If yes, in what circumstances may a franchisor refuse to renew?
This depends mainly on the contractual agreement between the franchisor and the franchisee, as there is no specific statutory law governing the issue. However, in case the trademark licensing registration is required, kindly note that the trademark registration will be valid for 10 years. The franchisor must, therefore, renew the trademark registration on a timely basis so that its related trademark licensing and franchising continues to be valid.
See question 34 for further detail.Transfer restrictions
May a franchisor restrict a franchisee’s ability to transfer its franchise or restrict transfers of ownership interests in a franchisee entity?
Yes. Under the terms of a franchise agreement, a franchisor may restrict a franchisee’s ability to transfer its franchise or ownership interests, as long as the restriction was initially agreed upon in the franchise agreement. Currently, there are no laws empowering the franchisor to restrict the franchisee’s ability to transfer its franchise or restrict transfers of ownership interest. Therefore, parties are generally free to agree on such restrictions.
On the contrary, the draft Franchise Act restricts a franchisor’s ability to transfer its franchise business or its intellectual property (IP) rights to others. The transferee of such business or right must be binding upon the franchise agreement previously done between the transferor (ie, ex-franchisor) and the franchisee. The franchisor must notify the Registrar at least seven days before the execution of the business or IP rights transfer agreement with the third party transferee. The franchisor must also notify the franchisee 60 days prior to the transfer of the business or IP rights to a third party transferee.Fees
Are there laws or regulations affecting the nature, amount or payment of fees?
Under current law, there is no law regulating the nature, amount or payment of fees. Under the draft Franchise Act, although payment of fees are required, it does not specify the nature or amount of those fees. The draft Franchise Act only prohibits the franchisor to call for any fee or deposit before signing of the franchise agreement, except for necessary expenses (eg, fee for registering the franchise agreement with the Registrar).Usury
Are there restrictions on the amount of interest that can be charged on overdue payments?
There are no restrictions on the amount of interest upon default that can be charged if such amount or rate is set forth in the franchise agreement. If the interest rate upon default is not agreed in the agreement, the statutory default interest rate of 7.5 per cent will apply (but in all case not exceeding 15 per cent per annum).
In addition, the parties may agree in advance that the franchisee pays a monetary penalty (ie, a liquidated damage) for non-performance or improper performance of the franchisee, that is, for late or overdue payments. However, if the rate of the penalty is unreasonably high, Thai courts are empowered to adjust the penalty rate to an appropriate figure. Thai courts have complete discretion as to whether or not the penalty is considered ‘high’.Foreign exchange controls
Are there laws or regulations restricting a franchisee’s ability to make payments to a foreign franchisor in the franchisor’s domestic currency?
Currently, there is no requirement under Thai law or the draft Franchise Act requiring payment to be made in Thai baht. Therefore, the payments can be made in a different currency if agreed by both parties. However, if the payments are to be remitted to any foreign country, the Thai foreign exchange control would apply. Purchase of foreign currency from authorised banks is generally allowed upon submission of documents indicating international trade and investment.Confidentiality covenant enforceability
Are confidentiality covenants in franchise agreements enforceable?
Yes. Confidentiality covenants in franchise agreements are generally enforceable as Thailand allows for freedom of contract. Additionally, the TSA provides added protection for the trade secrets of franchisors.
The draft Franchise Act provides even more protection regarding confidentiality. Under the draft Franchise Act, a franchisee and its representative are prohibited from disclosing any confidential information as required by the franchisor under the franchise agreement. Non-compliance with the aforementioned would expose the franchisee and its representative to criminal punishment.Good-faith obligation
Is there a general legal obligation on parties to deal with each other in good faith during the term of the franchise agreement? If so, how does it affect franchise relationships?
Yes. Under section 5 of the CCC there is a fundamental legal obligation on parties to deal with each other in good faith. This requirement affects franchise relationships in the same way it does all other areas of law. If a party does not deal in good faith, the Thai courts may find the franchise agreement to be void or void them at the request of the other party.
There is no specific obligation for the parties to maintain good faith during the term of the franchise agreement, therefore whether or not the parties maintain good faith depends on the party. However, the parties will be subject to duties that are specified in the franchise agreement and this could include maintaining good faith. If a party wishes to change the purpose of the franchise agreement, the party should amend or terminate the franchise agreement.Franchisees as consumers
Does any law treat franchisees as consumers for the purposes of consumer protection or other legislation?
The Consumer Protection Act 1979 (CPA) will apply to the contracts and advertisements made between the franchisee and the consumers. However, as both the franchisee and franchisor are business operators, they are not considered as a ‘consumer’ under the CPA. Therefore, such seller-consumer relationship does not arise between the franchisor and franchisee.Language of the agreement
Must disclosure documents and franchise agreements be in the language of your country?
Disclosure documents and franchise agreements can be in Thai or in another language. However, if the documents are to be registered or provided to Thai governmental authority or Thai courts, they must be translated into Thai to be admissible. Nevertheless, the draft Franchise Act requires that the franchisor must prepare and provide the franchisee with a ‘business operation manual’. The business operation manual must be made in Thai and in line with the details described by the Minister of the MOC.Restrictions on franchisees
Describe the types of restrictions placed on the franchisees in franchise contracts.
There are currently no specific restrictions on provisions in franchise contracts. Nevertheless, the draft Franchise Act prohibits a franchisor from forcing a franchisee to buy, rent or hire-purchase equipment, goods or any services from, or as designated by, the franchisor. In addition, the draft does require at least the following to be provided:
- the date of the contract and the date the contract becomes effective;
- rights, duties and responsibilities of the franchisor;
- rights, duties and responsibilities of the franchisee;
- period and area in which the franchisor gives permission to the franchisee to use its intellectual property rights in operating its business;
- deposits, fees and other costs that the franchisee must pay the franchisor; and
- agreements regarding contract renewal, termination, transfer of rights and return of money in the event that the franchisor breaches the contract.
See also question 45 for additional requirements under the TCA.Competition law
Describe the aspects of competition law in your country that are relevant to the typical franchisor. How are they enforced?
The TCA prohibits or restricts any business operator (franchisor) from entering into an agreement with another business operator (franchisee) in the same market to conduct any act amounting to a monopoly, reduction of competition or restriction of competition in the market of any particular good or a service, such as:
- fixing selling prices or restricting the sale volume;
- fixing buying prices or restricting the purchase volume;
- fixing conditions to enable one party to win a bid or tender or to prevent one party from participating in a bid; or
- restricting geographical areas or customers to whom each business operator may sell goods or provide services, etc.
The above will not apply to the conduct of business operators related to each other owing to a policy or commanding power as prescribed in the Commission’s notification.
Under the recent TCA, although the following activities are prohibited to be taken by business operators, they are allowed in case of a franchise:
- establishing conditions (ie, fixing selling or buying price or limiting the sale or purchase volume among business operators that are not competitors in the same market);
- reducing the quality of goods or services to a condition lower than that previously produced, sold, or provided;
- appointing or assigning any one person to exclusively sell the same goods or provide the same services, or of the same type;
- setting conditions or practices for purchasing or producing goods or services so that the practice follows what is agreed; and
- entering joint agreements in other manners as prescribed in the Commission’s notification.
Describe the court system. What types of dispute resolution procedures are available relevant to franchising?
The Thai court system is similar to the court system in other civil law jurisdictions. Other dispute resolution procedures, such as mediation and arbitration, are also available to parties engaged in a franchising agreement.Arbitration – advantages for franchisors
Describe the principal advantages and disadvantages of arbitration for foreign franchisors considering doing business in your jurisdiction.
Foreign franchisors contracting with Thai local franchisees often choose arbitration, whether foreign or domestic, as the dispute settlement mechanism. The main reasons for such a decision are as follows: (i) expedited hearing (in comparison with the Thai court process); (ii) less formality; and (iii) the ability to choose a more familiar language. The foreign arbitration award can be enforceable in the Thai Courts according to the Arbitration Act 2002.
Nevertheless, even though this expediency and flexibility is advantageous, the arbitration award must be submitted to a Thai court for enforcement if the adverse party refuses to comply - the award has no enforcement power of its own. The room for challenging the award when it is being enforced through the Thai courts is relatively low.National treatment
In what respects, if at all, are foreign franchisors treated differently from domestic franchisors?
Other than the different legal requirements for business entity formation and taxation, as discussed, foreign franchisors operating franchise businesses in Thailand are treated in the same way as domestic franchisors. Under the draft Franchise Act, for foreign franchisors operating businesses offshore, unlike for domestic franchisors, a franchise licence is not required, provided that related franchise agreement is duly registered in Thailand.
Update and trendsNew legislation and regulation
Are there any proposals for new legislation or regulation, or to revise existing legislation and regulation? Are there other current developments or trends to note?New legislation and regulation49 Are there any proposals for new legislation or regulation, or to revise existing legislation and regulation? Are there other current developments or trends to note?
No, there are not.