November 14, 2024

Overview of conclusion and registration a franchise agreement

1. Introduction

This memorandum outlines the legal regulations and peculiarities of entering into a franchise agreement in the Republic of Uzbekistan.

2. LEGAL ACTS REGULATING THE FRANCHISE AGREEMENT

Civil Code of the Republic of Uzbekistan (Civil Code of the Republic of Uzbekistan)
The Law on Trademarks, Service Marks, and Places of Origin of Goods;
The Law on Competition;
The Law on Trade Secrets;
The Law on Trade Names;
Administrative regulations for the provision of state services for the state registration of contracts of complex entrepreneurial activity (franchising) (Regulations for the registration of contracts on franchising);
Procedure for registration of the agreement on the transfer of the right to an invention, utility model, industrial design, selection achievement, trademark, service mark, and license agreements for their use, agreements on the transfer of the right to the integrated circuit topology, transfer of all property rights and transfer of property rights to an electronic computer program or database (Rules);
Administrative Regulations for the Provision of State Services for the Registration of Trademarks and Service Marks (Regulations for the Registration of Trademarks).

3. LEGAL DEFINITION OF FRANCHISING

The Civil Code of the Republic of Uzbekistan defines a franchise agreement as a comprehensive business license agreement (Franchise Agreement). Under the franchise agreement, (1) one party (complex licensor) undertakes to provide (2) the other party (complex licensee) with for a fee, a set of exclusive rights (complex license).

This set of exclusive rights may include:

the right to use the licensor’s brand name and trade secrets;
other objects of exclusive rights to:
- service mark.
- inventions, etc., provided in the contract, in the business activity of the licensee.

Terms:

licensor — the holder of a set of exclusive rights (complex license), which provides the licensee with a set of exclusive rights for use on a paid basis;
licensee — the user of a set of exclusive rights of the licensor, using it for business activities;

significantе changes and additions to the franchise agreement – making changes and additions to the subject matter of the agreement, quantity, quality, assortment, price of the delivered goods (works, services), terms of performance, payment procedure, details of the parties, date and place of conclusion of the agreement, as well as other essential terms that are required by legislative acts for franchise agreements or for which an agreement is reached.

4. GENERAL REQUIREMENTS FOR A FRANCHISE AGREEMENT

According to the Civil Code of the Republic of Uzbekistan, a franchise agreement must be concluded in writing and subject to state registration. Apart from the franchise agreement, any further amendments shall be registered (hereinafter referred to as “Registration”).

For Registration, it is necessary to apply to the state body that registers the legal entity or individual entrepreneur acting as a licensor under the contract (see para. 5).

Note!

Failure to comply with the written form and register the franchise agreement results in the agreement’s invalidity.

4.1. Requirement for subjects of a franchise agreement

It is worth noting that the Civil Code of the Republic of Uzbekistan has strictly limited the parties to this agreement and determined that the parties to the franchise agreement can only be (1) commercial organizations and (2) citizens registered as individual entrepreneurs.

In practice, the optimal form of a legal entity is considered an LLC.

4.2. Obligations to disclose information before entering into a franchise agreement

Uzbek legislation does not specify the procedure for the licensor’s disclosure of information prior to signing a franchise agreement.

The Civil Code of the Republic of Uzbekistan establishes the licensor’s obligations to transmit information only under the contract, in particular: the obligation to communicate technical and commercial documentation and provide other information necessary for the licensee to exercise the rights granted to him under the franchise agreement, as well as instruct the licensee and its employees on issues related to the exercise of these rights.

4.3. Subject of the franchise agreement:

The franchise agreement provides for the use of: (1) the license package; (2) the business reputation; (3) the licensor’s commercial experience to a certain extent (with the establishment of a minimum and/or maximum use); (4) with or without specifying the territory of use to a particular field of activity: sale of goods received from the licensor or produced by the licensee, provision of services, performance of works, implementation of commercial activities, etc.).

4.5. Term

A franchise agreement may be (1) fixed-term with a specific period specified, or (2) an indefinite contract concluded for an indefinite period.

4.6. Sublicense service

The Civil Code of the Republic of Uzbekistan determines that the franchise agreement may provide for the right of the licensee to allow the use of the complex license or part of it provided to him to other persons on the terms agreed by him with the licensor or defined in the franchise agreement. Similarly, the contract may also contain the licensee’s obligation to grant a certain number of sublicenses within a certain period, with or without specifying the territory of their use.

Important!

Upon termination of the franchise agreement, the sublicense agreement is also terminated.

4.7. Award

The Civil Code does not restrict the parties to the franchise agreement to choose the form of remuneration. In this case, the parties may determine the payment in the form of (1) fixed one-time or (1) periodic payments, (3) deductions from revenue, (4) mark-ups on the wholesale price of goods supplied to it by the licensor for resale, or in any other form provided for in the franchise agreement.

4.8. Applicable law to the franchise agreement

According to the Civil Code, the parties to a franchise agreement can choose the applicable law to such an agreement. In particular, Article 1189 of the Civil Code of the Republic of Uzbekistan stipulates that any agreement is governed by the law of the country chosen by the agreement of the parties unless otherwise provided by law. The legislation of the Republic of Uzbekistan does not oblige the parties to the franchise agreement to choose the legislation of the Republic of Uzbekistan as the applicable law.

However, according to Article 1190 of the Civil Code of the Republic of Uzbekistan, in the absence of an agreement between the parties on the applicable law, the following applies:

the law of the country in which the party that performs the performance that is crucial to the content of such a contract is established, domiciled, or has its principal place of business; or
if it is not possible to determine the performance that is crucial to the content of the contract, the law of the country with which the contract is most closely related applies.

5. REGISTRATION REQUIREMENTS

According to the legislation of the Republic of Uzbekistan, a franchise agreement is subject to registration in the following cases:

in Public Service Centers through an automated system of state registration and registration of business entities – a franchise agreement, amendments, and additions to it;
in the Department of Intellectual Property of the Ministry of Justice of the Republic of Uzbekistan – the corresponding part of the franchise agreement, including exclusive rights to intellectual property (license agreement) (see paragraph 6).;
in the Unified System of Foreign Trade Operations – if the franchise agreement provides for foreign trade operations (export-import of goods, works, and services) ( learn more about the registration of contracts in the Unified System of Foreign Trade Operations here).

Also, if the rights to intellectual property are not registered in the territory of the Republic of Uzbekistan, registration of the intellectual property right and its transfer under the franchise agreement are carried out at the discretion of the parties.

According to the Civil Code of the Republic of Uzbekistan, a franchise agreement is subject to registration by the body that registers the legal entity or individual entrepreneur acting as a licensor under the agreement. However, in accordance with the Rules for Registration of Franchise Agreements, applicants for Registration can be the licensor, licensee, and their representatives. The legislation of the Republic of Uzbekistan does not answer the question of whether a franchise agreement is subject to Registration in Public Service Centers if the licensor under the franchise agreement is registered in a foreign country and whether foreign law applies to the franchise agreement under which registration of the franchise agreementе is not required.

For Registration, the applicant applies to Public Service Centers or registers in the System through the Unified portal of interactive public services. Registration is carried out according to the following scheme:

№

Subjects

of Action

Terms

of execution 1

Applicant (licensor;

licensee;

representative of the licensor or licensee)

For state registration of a comprehensive business license agreement (franchising), the applicant must:

applies to the registration authority (if the applicant applies in absentia, an employee of the registration authority fills out a questionnaire on behalf of the applicant); or

registers for the Unified portal of interactive public services via the Internet (when applying through the Unified portal of interactive public services, the applicant independently fills out an electronic questionnaire, and verifies the correctness of the information, and certifies the questionnaire with modern identification tools* (electronic digital signature, mobile-ID, electronic signature, fingerprinting, etc.).

* The applicant does not need to complete the application form with an electronic digital signature.

The following documents are attached to the application form* in electronic form:

a) when registering:

– franchise agreement;

– for a foreign licensor – certificate of incorporation in a foreign state or replacement documents;

b) when state registration of significant changes and additions:

– a copy of significant changes and additions made to the franchise agreement;

– when making changes and additions to the franchise agreement based on a court order – a copy of this document;

– a document confirming the authority of the representative.

*Submission of other documents not specified above is prohibited.

Optional

(prior to starting the activity under the agreement)

Applicant (licensor;

licensee; representative of the licensor or licensee)

For state registration (re-registration) of a franchise agreement, a fee is charged in the amount of one-third of the basic estimated amount.

In the case of applying through the Unified portal of interactive public services, a fee of 90 percent of the amount paid when applying to the registration authority in person is charged.

At the time of application

Registration Authority

(Public Service Center)

If the submitted documents comply with the requirements of the Regulations for registration of franchise agreements, it performs state registration (re-registration).

In case of non-compliance of the submitted documents with the requirements of the Regulations for registration of Franchise Agreements, it denies state registration of the franchise agreement and notifies the applicant thereof.

В Within one business day

Applicants (licensor;

licensee; representative of the licensor or licensee)

If the state registration of the franchise agreement is refused, it is re-applied after the relevant shortcomings are eliminated.

Within three months of receiving the notification

Registration Authority(Public Service Center)within three months from the date of receipt of the notification

(Public Service Center)

Submits a certificate of state registration of a franchise agreement to the applicant (when applying in person) or sends it to the applicant’s account for the Unified portal of interactive public services.

In real-time mode after deciding on state registration

5.1. Grounds for refusal of registration

The legislation of the Republic of Uzbekistan establishes an exhaustive list of grounds for refusal of Registration. In the following cases, the applicant is refused Registration:

treatment by non-conforming right holders (legal users) of a set of exclusive rights;
submission of documents not in full or submission of deliberately false documents or information;
non-compliance of the submitted documents with the requirements of legislative acts of the Republic of Uzbekistan;
lack of necessary permits (licenses) for the right to carry out the relevant type of activity, if such a permit (license) is required in accordance with the legislative acts of the Republic of Uzbekistan.

5.2. Fee for Registration

For Registration, a registration fee is paid to the bank account of the registering authority in the amount of 1/3 of the basic calculation value(as of the date of writing this memorandum, 1 BRV= 375,000 soums, and as a result, the fee will be= 123,700 soums).

The fee paid is non-refundable in the following cases:

upon termination and application by the applicant at any stage;
if Registration is refusedе by the registration authority.

Сбор The registration fee is not paid in the following cases:

when state registration of changes and additions to the franchise agreement on the basis of an act of a judicial body;
when reviewing documents related to the state registration of the franchise agreement (significant changes, additions) again.

State registration of a sublicense agreement is carried out in accordance with the procedure established for state registration of a franchise agreement.

6. INTELLECTUAL PROPERTY PROTECTION

In order to protect an intellectual property object, Uzbek legislation requires registration of the relevant part of the franchise agreement (or license agreement), which includes exclusive rights to intellectual property objects, in the Intellectual Property Department of the Ministry of Justice of the Republic of Uzbekistan.

In this case, the license agreement will be an integral part of the franchise agreement.

If the above requirement is not met, the relevant part of the agreement (license agreement), if other terms of the agreement can independently remain in force, or the franchise agreement as a whole is considered not concluded and invalid.

If the object of intellectual property is not registered in the territory of the Republic of Uzbekistan, registration of the intellectual property right and its transfer under the franchise agreement are carried out at the discretion of the parties to the agreement.

6.1. Commercial secret

Commercial secrets are regulated by the Civil Code of the Republic of Uzbekistan and the Law “On Commercial Secrets”. It should be noted that persons who own a commercial secret(information that has commercial value in scientific, technical, technological, industrial, financial, economic, and other areas due to its unknown nature to third parties, to which there is no free access on a legal basis) they are obliged not to disclose the information transferred in accordance with the agreement and must take measures to protect confidentiality.

Persons guilty of violating the law on trade secrets may be held administratively / criminally liable for disclosing trade secrets.

7. FAIR COMPETITION

The Civil Code of the Republic of Uzbekistan stipulates that a franchise agreement may be exclusive and contain the following conditions:

the licensor’s obligation not to issue other similar franchise agreements for their use in the territory assigned to the licensee, or to refrain from direct independent activities in this territory;
the licensee’s obligation not to compete with the licensor in the territory of use of the franchise agreement;

refusal of the licensee to obtain other franchise agreements from the licensor’s competitors (potential competitors);

the licensee’s obligation to coordinate with the licensor the location of commercial premises used in the exercise of exclusive rights granted under the agreement, as well as their external and internal design.

But also the Civil Code of the Republic of Uzbekistan determines the invalidity of the terms of an exclusive agreement if they give the right to:

the licensor must determine the price of sale of goods by the licensee or the price of works (services) performed (rendered) by the licensee, or set the upper or lower limit of these prices;
to the licensee, sell goods, perform works, or provide services exclusively to a certain category of buyers (customers) or exclusively to buyers (customers) who have their location (place of residence) in the territory specified in the agreement.

8. CURRENCY REGULATION AND TAXATION

8.1. Currency

If a franchise agreement is concluded with a foreign entity, the agreement will be considered as a foreign trade contract and is subject to registration in the Unified Information System for Foreign Trade Operations.

It should be noted that all payments in Uzbekistan are made in the national currency. However, payments under foreign trade contracts can be made in foreign currency.

In general, there are no special restrictions on repatriation and other currency transactions.

8.2. Taxation

According to the Tax Code of the Republic of Uzbekistan, when paying royalties to a non-resident who does not have a permanent establishment, the licensee will be considered an income tax agent, and the tax is withheld at the rate of 20% for each payment of income if there is no international agreement between the licensor’s country and the Republic of Uzbekistan providing for the avoidance of double taxation or the application of a reduced tax rate.

9. Responsibility

9.1. Subsidiary liability

The Civil Code of the Republic of Uzbekistan determines that in case of non-compliance with the quality of goods (work, services) sold (performed, rendered) by the licensee under the franchise agreement, the licensor bears subsidiary responsibility for the requirements imposed on the licensee.

9.2. Joint and several liability

According to the requirements imposed on the licensee as a manufacturer of products (goods) by the licensor, the licensor is jointly and severally responsible to the licensee.

For all other claims submitted to the licensee, the licensor does not bear any responsibility.

Overview of conclusion and registration a franchise agreement

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