There are various ways of starting a business in Thailand and apart from registering new businesses, foreign investors can purchase shelf companies under which they can develop any type of commercial activity. Another way of setting up a Thai business is to buy a franchise and operate it on the local market. As a matter of fact, franchise businesses are quite popular in Thailand.
If you want to open a franchise business in Thailand, you will need to respect the provisions of the Civil and of the Commercial Law. With the help of our attorneys in Thailand, setting up a franchise is quite simple and fast forward.
Legislation on franchising in Thailand
As mentioned at the beginning of the article, the Civil Law and the Commercial Code are the main laws which provide for franchise businesses in Thailand. However, two more important laws which have an indirect impact on the regulations franchise businesses need to respect in Thailand are the Trademark and the Copyright Acts, which establish the intellectual property conditions the franchisee must respect and the Unfair Contract Law, under which certain provisions related to the franchise agreement apply.
It is also useful to know that at the moment the Thai Government is working on specific legislation for franchises called the Franchise Business Act.
With years of knowledge in the commercial legislation, our lawyers in Thailand can offer detailed information on the laws which need to be respected when setting up a franchise in this country.
Parties entering a franchise agreement in Thailand
The main parties entering the franchise agreement are the franchisor and the franchisee. The franchisor is the party with the business model and expertise in marketing of the model, or better said the owner of the company to offer the intellectual property rights over the business idea. The franchisee is the party engaging to market the business model of the franchisor under the latter’s conditions.
Types of franchise businesses in Thailand
There are several types of franchise businesses one can establish in Thailand. These are:
- the local franchise under which the franchisee can open a business in a certain city;
- the regional franchise under which the franchisee can represent a brand at a regional level;
- the international franchise under which a foreign investor can represent an international brand in Thailand;
- the single-unit franchise under which the franchisee can operate in a single location in Thailand;
- the multi-unit franchise under which the franchisee is allowed to establish several locations.
No matter the type of franchise business one intends to open in Thailand, a franchise agreement must be drafted and signed.
The Thai franchise agreement
Even if a franchise can be set up by a sole trader, given the fact that the franchise fee can be quite high in certain situations, it is best to register a Thai limited liability company before entering the agreement.
A new franchise business is created based on a franchise agreement which must contain:
- the details of the franchisor and the franchisee, such as their details and addresses;
- information about the object of the franchise agreement (the conditions of the franchisor);
- the rights of both franchisor and franchisee towards one another must also be specified in the agreement;
- the obligations of the franchisor and the franchisee and the type of franchise to be created;
- the date of signing the agreement and the date of commencement of the franchise business, as well as the end date of the contract.
The most important aspects when setting up a Thai franchise business are related to the rights and obligations of the franchisor and the franchisee. The franchisor has the obligation of putting at the disposal of the franchisee all the know-how and materials to help him/her follow the business model in exchange for a flat fee or a percentage of the royalties. The franchisee must respect all the conditions and use only the materials under the commercial name of the franchisor.
If you need help in drafting a franchise agreement which is similar to a distribution contract, our Thai attorneys are at your disposal.
Why start a franchise business in Thailand?
According to the latest statistics issued by Deloitte, Thailand:
- in 2018, the country’s Gross Domestic Product rose by 3.6%;
- is expected to end 2019 with an economic growth of 3.9%;
- exports represent 10% of Thailand’s GDP;
- private consumption is expected to grow by 49% by the end of the year;
- total investment in the country is expected to represent 16% of the GDP.
If you want to open a franchise business and need assistance, please contact our law firm in Thailand.