Franchising in Uzbekistan

A franchise is essentially a "lease" of a trademark or a well-established business. The purpose of such a lease is that the parent company, usually a large, reputable, and well-known entity in a particular market, enters into an agreement with a smaller or new independent enterprise, granting it the exclusive right to produce certain goods and sell them, as well as to provide services under the trademark of the parent company. For the parent company, this is an opportunity to generate additional financial profit and expand into new markets, while for the smaller (new) enterprise, it is a chance to quickly "get the business up and running" thanks to the brand recognition of the parent company (the owner of the established business).

In many countries, the use of a franchise is regulated by an agreement between the franchisor (the party granting the franchise) and the franchisee (the party receiving it). The content of such an agreement may vary—from simple to very complex—containing the smallest details about the use of the trademark. As a rule, the agreement stipulates the amount of payments for using the franchise (which may be fixed, one-time for a certain period, or a percentage of sales). Such payments may also be absent, in which case the franchisee undertakes to purchase a certain amount of goods/works/services from the franchisor.

In Uzbekistan, the main issues related to franchising are regulated by the Civil Code, which defines a "franchising agreement" (or a comprehensive business license agreement) as an agreement under which one party (the licensor) grants the other party (the licensee), for consideration, a set of exclusive rights (a licensing package). This package includes the right to use the licensor's trade name and protected commercial information, as well as other objects of exclusive rights (trademark, service mark, invention, etc.). The purpose of the franchising agreement is to enable the licensee to carry out an identical business model of the licensor in another country, region, or city. According to the Civil Code of the Republic of Uzbekistan, only business entities—commercial legal entities and/or individual entrepreneurs—may be parties to such an agreement.

A franchising agreement provides for the use of the licensing package, business reputation, and commercial experience of the licensor to a certain extent, with or without specifying the territory of use, in relation to a particular area of activity (sale of goods received from the licensor or produced by the licensee, provision of services, performance of works, carrying out commercial activities, etc.).

In Russia, a similar agreement is known as a commercial concession (franchising agreement).

Uzbek law requires mandatory state registration of a franchising agreement with the Public Service Center (PSC) and the Ministry of Justice of the Republic of Uzbekistan (for the licensing component). Failure to register the agreement renders it invalid.

Regarding the liability of the parties under the agreement toward consumers, the licensor bears subsidiary liability for claims made against the licensee concerning non-compliance with the quality of goods (works, services) sold (performed, rendered) by the licensee under the franchising agreement. For claims made against the licensee as the manufacturer of the licensor's products, the licensor and licensee bear joint liability.

Obligations of the Parties under the Franchising Agreement

Obligations of the Licensor (Franchise Owner):

• Provide the licensee with technical and commercial documentation and other information necessary for exercising the rights granted under the franchising agreement, as well as instruct the licensee and their employees on matters related to the exercise of these rights.
• Issue the licenses stipulated in the agreement and ensure their proper execution.
• Provide ongoing technical and consulting assistance to the licensee, including assistance with training and skills development of employees.
• Fulfill other obligations specified in the franchising agreement.

Obligations of the Licensee (Franchise Buyer):

• Use the licensor's trade name in accordance with the terms of the franchising agreement.
• Ensure that the quality of the goods produced, services provided, and works performed matches the quality of similar goods, services, or works produced, provided, or performed directly by the licensor.
• Follow all instructions and directions of the licensor aimed at achieving compliance with the nature, methods, and conditions of using the exclusive rights included in the licensing package, including those relating to the interior and exterior design of commercial premises used by the licensee.
• Provide customers with all additional services they could expect when purchasing goods (ordering services, works) directly from the licensor.
• Refrain from disclosing the licensor's trade secrets and other confidential commercial information received.
• Issue the agreed number of sublicenses, if this obligation is expressly stipulated in the franchising agreement.
• Inform customers, in the most obvious way, that the trade name, trademark, service mark, or other means of individualization is being used under a franchising agreement.
• Fulfill other obligations specified in the franchising agreement.

State Registration of the Agreement

To carry out state registration of the franchising agreement, the licensor or licensee must submit the following documents to the PSC:

1. A completed standard application form for state registration of the agreement.
2. The franchising agreement in Russian or Uzbek (or a notarized translation into one of these languages if the agreement was executed in English or another foreign language).
3. A power of attorney for the representative of the licensor or licensee submitting the documents to the PSC.
4. An extract from the state register of a foreign country or equivalent documents (such as a trade register extract, business license, etc.) if the licensor is a foreign company.

If necessary, the representative's power of attorney and the extract from the state register must be apostilled (legalized) and have a notarized translation into Russian or Uzbek. The PSC carries out the registration within one business day.

It is important to note that the PSC has the right to refuse registration of a franchising agreement if the licensee does not have a license (permit) to carry out the relevant type of activity, provided such activity is subject to mandatory licensing under Uzbek law. For example, if the franchise relates to the provision of medical services in Uzbekistan, the licensee must have an appropriate medical services license issued by the Ministry of Health of the Republic of Uzbekistan.