Information Disclosure in Franchising Systems: Legal Practice and Prospects for Regulatory Reform in China

Abstract

This study uses doctrinal, empirical, and case analysis methods to examine one of the most important yet controversial issues in franchising systems: information disclosure. It aims to demonstrate the current status of franchise disclosure laws in China, identify related problems, and propose legislative reforms to resolve such problems. In this study, cases heard in Chinese courts from 2017 to 2021 were analyzed. The results suggest that, despite their increasing importance, the current disclosure laws provide insufficient guidance, as courts create discrepancies in applying the laws, resulting in uncertainty. Considering this, and to strike a fine balance between the compliance burden on the franchisor and protection of franchisees, this study proposes a new legal framework in which the disclosed information is classified into two types: a closed record of core information to improve cooperation between the franchisor and franchisees and an open record of general information to promote good faith negotiations. Furthermore, regulation of full disclosure and the liability of its non-compliance with respect to the two types of information can be distinguished. This framework can provide courts with guidance in solving disclosure disputes in a more systematic, transparent, and consistent manner.