Franchising is one of the important business systems in the business ecosystem in Indonesia. With the dynamic development of franchise business activities in Indonesia, regulations are needed to realize fair trades, legal certainties, and business partnerships between franchisors and Micro, Small, Medium Enterprises (“MSMEs”). That the franchise regulations in Government Regulation Number 42 Year 2007 Regarding Franchise (“Peraturan Pemerintah (“PP”) No. 42 Year 2007”) can no longer accommodate the developments of legal needs and the dynamics of franchise business activities, hence the government issued new regulations through Government Regulation Number 35 Year 2024 Regarding Franchise (“Peraturan Pemerintah (“PP) No. 35 Year 2024”). With the enactment of PP No. 35 Year 2024 Regarding Franchise, the prior PP No. 42 Year 2007 is officially revoked.

The followings are some of the main points that have changed with the new regulations:

• Franchise and its Criteria

Franchise is a special right owned by an individual or business entity to a business system with established criteria in order to market goods and/or services that have been proven successful and can be utilized and/or used by other parties based on a Franchise Agreement.

The Franchise Criteria based on Article 4 of PP No. 35 Year 2024 Regarding Franchise shall include:

1. have a business system

The existence of written operational standards and procedures regarding administration, human resources and employees’ qualifications, operations, operating methods, marketing strategies.

2. the business has provided profits

A business that has been running for at least 3 (three) consecutive years and the financial statements for the last 2 (two) years show a profit that has been audited through a public accountant audit process (except the Franchisor is in the MSMEs scale).

3. Have a registered or recorded Intellectual Property

Including trademarks, copyrights, patents, trade secrets and industrial design.

4. Continuous support from the Franchisor and/or Subsequent Franchisor to the Franchisee and/or Subsequent Franchisee.

These criteria can be proven through the implementation of trainings, operational managements, promotions, researches, market developments, and other coaching methods.

A Franchise Agreement is a written agreement between the Franchisor and the Franchisee or the Subsequent Franchisor and the Subsequent Franchisee that contains the granting of rights to enjoy the economic benefits of a Franchise for a certain period of time and conditions.

The Franchise Agreement under PP No. 35 Year 2024 Regarding Franchise, also contains a guarantee from the Franchisor or Subsequent Franchisor to continue to perform its obligations to the Franchisee or Subsequent Franchisee.

• The Franchise Offering Prospectus

Franchise Offering Prospectus is a written statement from the Franchisor or Subsequent Franchisor to prospective Franchisee or prospective Subsequent Franchisee as information regarding the franchised business.

Regarding the Franchise Offering Prospectus is being explained in Article 5 of PP No. 35 Year 2024 Regarding Franchise. The Franchisor or Subsequent Franchisor shall submit the Franchise Offering Prospectus to prospective Franchisee or prospective Subsequent Franchisee no later than 14 (fourteen) calendar days prior to the signing of the Franchise Agreement.

The Francshise Offering Prospectus shall contain at least:

1. identity data of the Franchisor or Subsequent Franchisor;
2. business legality of the Franchisor or Subsequent Franchisor;
3. history of the business activities;
4. organizational structure of the Franchisor or Subsequent Franchisor;
5. business systems;
6. financial statements for the last 2 (two) years;
7. number of Franchise outlets/ business premises;
8. list of Franchisees or Subsequent Franchisees;
9. rights and obligations of the Franchisor or Subsequent Franchisor and Franchisee or Subsequent Franchisee; and
10. intellectual property registration certificate or official letter regarding the recordal of intellectual property.

The Franchise Offering Prospectus shall be written in Bahasa Indonesia.

• Use of Domestic Products

Article 26 of PP No. 35 Year 2024 Regarding Franchise specifically regulates the Use of Domestic Products. Franchisor and Subsequent Franchisor shall prioritize the use of domestically produced goods and/or services. Likewise, Franchisee and Subsequent Franchisee prioritize the use of domestically produced goods and/or services to the extent that they meet the quality standards of goods and/or services stipulated in writing by the Franchisor and Subsequent Franchisor.

Franchisor and Subsequent Franchisor, as well as Franchisee and Subsequent Franchisee must cooperate with Micro, Small and Medium Enterprises in local areas as suppliers of goods and/or services.

Furthermore, Article 27 of PP No. 35 Year 2024 Regarding Franchise states that in organizing Franchises, the Franchise organizers shall prioritize in processing of raw materials domestically.

• Franchise Logo

Franchise Logo is also regulated in PP No. 35 Year 2024 Regarding Franchise. Franchise Organizers are required to use the Franchise Logo. Annex I of PP No. 35 Year 2024 Regarding Franchise contains the following of the Franchise Logo:

Franchise Logo[1]

Source: Annex I PP No. 35 Year 2024, Franchise Logo

Elements of Logotype:

1. Standard size with the main graphic element is a form of a box sized 15,5 x15,5 cm outer beveled box, 11,2 x 12,2 cm rectangular box, and 5,7 x 9,8 cm inner rectangular box.
2. Color guide with Blackmetallic and Silvermetallic.
3. Words of “WARALABA INDONESIA” (“INDONESIA FRANCHISE”) written in font type of Bangla MN and size of 27,5pt, letter ‘W’ written in font type of Cambria and size of 200pt, and the word of “TERDAFTAR” (“Registered”) written in font type of Gill Sans Light.

The Franchise Logo is placed or installed in an open and easily visible place in each of Franchise outlet. Franchise Organizers who do not use the Franchise Logo are subject to administrative sanctions from written warnings, temporary suspension of business activities, and revocation of the Surat Tanda Pendaftaran Waralaba (Franchise Registration Certificate).

• Surat Tanda Pendaftaran Waralaba (Franchise Registration Certificate)

Surat Tanda Pendaftaran Waralaba (“STPW”) (Franchise Registration Certificate) is a Business License to support business activities, which is a proof that an individual or business entity has been registered as a Franchise Organizer. STPW shall be owned by the Franchisor or Subsequent Franchisor before entering into a Franchise Agreement, and the Franchisee or Subsequent Franchisee as a Business License to support business activities.

The Franchisor’s STPW is declared invalid if the Franchisor stops its business activities, and/or the intellectual property protection period ends. Franchisee’s STPW is declared invalid if the Franchise Agreement ends, its business activities are terminated, and the intellectual property protection period ends.

• Introduction to the OSS System

PP No. 35 Year 2024 Regarding Franchise introduces an electronic system that becomes an instrument for Franchisor, Subsequent Franchisor, Franchisee, and Subsequent Franchisee to carry out administrative activities in order to register and carry out Franchise business activities. The said system is the Electronically Integrated Business Licensing System (Online Single Submission), hereinafter referred to as the “OSS System”, is an integrated electronic system managed and organized by the OSS Institution for the implementation of risk-based Business Licensing.

Regarding Franchise, here are some items that are done through the OSS System:

1. Application for STPW;
2. Issuance of STPW;
3. Changes of STPW;
4. Revocation of STPW;
5. Franchise Status Information; (such as notification of temporary suspension of Franchise business activities and the revocation of sanctions of temporary suspension of business activities);
6. Reporting of Franchise business activities; and
7. Reporting of no longer running the Franchise business activities.

• Business Activities Report

Reporting of the Business Activities is being regulated in Article 28 of PP No. 35 Year 2024 Regarding Franchise. This reporting is being carried out through the OSS System, which includes:

1. number of Franchisees or Subsequent Franchisees;
2. number of outlets;
3. financial statements containing the profit and loss balance sheet;
4. earnings;
5. amount of compensation;
6. information regarding the processing of raw materials in Indonesia;
7. number of employees;
8. status of the intellectual property protection; and
9. continuous support to Franchisee or Subsequent Franchisee.

[1] Annex I, Government Regulation of the Republic of Indonesia No. 35 Year 2024 Regarding Franchise.

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