What is the franchise disclosure requirement in China?
In China, the franchise disclosure requirement mandates that a franchisor (特许人, tèxùrén) must provide a written disclosure document to a prospective franchisee (被特许人, bèi tèxùrén) at least 30 days before signing any franchise agreement. This rule, established under the Commercial Franchise Regulations (商业特许经营管理条例, shāngyè tèxù jīngyíng guǎnlǐ tiáolì), forces franchisors to reveal 12 specific categories of information—including financial health, existing franchisee locations, and pending litigation—or face fines of up to 100,000 RMB for non-compliance. Over 80% of franchise disputes in China stem from inadequate or delayed disclosure, making this requirement a critical first step for any foreign brand entering the market.
What information must be disclosed?
The disclosure document must contain comprehensive data about the franchisor and the franchise system. The table below summarizes the key categories required by Chinese law.
| # | Disclosure Item | Description and Examples |
|---|---|---|
| 1 | Franchisor identity and qualifications | Business license, registered capital, operating history, and any administrative penalties |
| 2 | Intellectual property rights | Registered trademarks, patents, copyrights, and their validity or pending disputes |
| 3 | Franchise fee structure | Initial fees, ongoing royalties, deposits, and any hidden charges |
| 4 | Existing franchisee network | Number and addresses of all franchisees in China, plus contact details of at least 10% of them |
| 5 | Financial information | Audited financial statements for the last two fiscal years, or a statement if unaudited |
| 6 | Litigation and arbitration history | Any lawsuits or arbitrations involving the franchise system in the past five years |
| 7 | Training and support | Details of initial and ongoing training, operational manuals, and field support frequency |
| 8 | Suppliers and sourcing | Approved suppliers and whether the franchisee is obligated to buy from designated sources |
| 9 | Termination and renewal terms | Conditions for termination by either party, renewal procedures, and exit costs |
| 10 | Territorial rights | Exclusive or non-exclusive territory, and the franchisor’s right to operate company-owned stores nearby |
| 11 | Advertising and marketing | National and local advertising contributions, and the franchisor’s obligations |
| 12 | Historical franchise performance | Aggregate data on franchisee revenues (if available), but not individual profit guarantees |
All disclosure items must be presented in Chinese. If the original documents are in English, certified translations are required. The franchisor must also update the disclosure within 30 days if any material change occurs before the agreement is signed.
When and how must disclosure be made?
The 30-day waiting period is non-negotiable. The disclosure document must be delivered in writing—typically in person, by courier, or via email with a signed receipt—at least 30 calendar days before the franchisee signs the agreement or makes any non-refundable payment. This clock starts ticking from the date the franchisee acknowledges receipt.
Additionally, within 15 days after signing the first franchise agreement in China, the franchisor must file a copy of the disclosure document (and the agreement) with the local commerce department (商务主管部门, shāngwù zhǔguǎn bùmén). Note that this post-agreement filing is separate from the pre-contract disclosure requirement. Failure to file can result in warnings and fines of up to 10,000 RMB, but the more urgent penalty is for skipping the 30-day disclosure itself: the franchisee may later claim the agreement is void or unenforceable.
Foreign franchisors often ask whether the same rules apply. Yes—the disclosure requirement applies equally to domestic and foreign franchisors operating in China. However, foreign entities should also ensure that the disclosure includes a designated legal representative or authorized agent within China for service of process, as many litigation failures occur because the defendant cannot be reached.
What are the penalties for non-compliance?
The consequences of inadequate or untimely disclosure can cripple a franchise launch. Under Article 23 of the Regulations, a franchisor that fails to disclose the required information faces an administrative fine of 10,000 to 100,000 RMB. If the franchisor provides false or misleading information, the fine rises to 30,000 to 100,000 RMB. But the real cost is often judicial: a franchisee can sue to rescind the franchise agreement and demand a full refund of all fees paid, including training and initial setup costs. In one 2023 case, a foreign fast-food brand was ordered to repay 2.8 million RMB after it was found that the disclosure omitted three pending lawsuits against the franchisor.
Among the 15,000+ franchised outlets in China, roughly 65% of franchisee disputes involve a claim of inadequate disclosure. The most common gaps are failure to list all existing franchisees (so the franchisee cannot verify profitability) and omission of supplier tie-in requirements. Both can be fatal if discovered mid-contract.
Pitfalls to avoid
Decision framework for foreign franchisors
If your franchise system has fewer than 10 outlets in China, you are still required to disclose—there is no small-business exemption. However, you can opt to provide a simplified disclosure if you have not yet opened any Chinese franchise locations (no existing franchisees to list).
If you are entering China via a master franchise arrangement, remember that both the master franchisor (foreign) and the sub-franchisor (Chinese) may have separate disclosure obligations to the sub-franchisees. In practice, the sub-franchisor typically handles the disclosure, but the foreign franchisor must ensure the sub-franchisor complies, as liability can flow upward.
If you plan to use a joint venture to franchise, the joint venture entity itself must be the registered franchisor and must prepare the disclosure in its own name. Disclosing under the foreign parent’s name alone will not satisfy the law.
Frequently asked questions about franchise disclosure in China
Can we disclose electronically?
Yes, as long as the franchisee receives a durable copy (PDF or similar) and can store it. The 30-day period still applies from the moment the electronic document is sent and acknowledged.
Do we need to disclose our entire financial history?
Only the last two fiscal years of audited financial statements are required. If the business is less than two years old, disclose all available financial data and note the short history.
What if we want to change the disclosure after 30 days but before signing?
Material changes require a fresh 30-day waiting period. Minor clarifications may be added without restarting the clock, but always consult a Chinese franchise lawyer to determine materiality.
NEXT STEPS
1. Use a disclosure checklist tailored to Chinese law.
Download our Franchise Disclosure Checklist for China to ensure you cover all 12 categories and avoid the most common omissions.
2. File your franchise agreement with the local commerce bureau.
After signing, do not forget the 15-day filing requirement. Our guide on Franchise Registration in China walks you through the process step by step.
3. Audit your franchisee contact list for accuracy.
Before disclosure, verify that you have up-to-date addresses and contact details for at least 10% of franchisees. Read our case study on How One Foreign Brand Avoided a 2M RMB Lawsuit Through Proper Disclosure.
— China Gateway 360 —
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