Feature and legal regulations of franchising in Mongolia

In general, a franchise is a method of distributing products or services involving afranchisor, who establishes the brand’s trademark or trade name and a business system,and a franchisee, who pays a royalty and often an initial fee for the right to do businessunder the franchisor’s name and system according to the definition by the InternationalFranchise Association. Further, according to the Investopedia definition, a franchise isjoint venture between a franchisor and a franchisee. The franchisor is the originalbusiness. It sells the right to use its name and idea. The franchisee buys this right to sellthe franchisor’s goods or services under an existing business model and trademark.

Although there is no express definition of franchise in the legal framework of Mongolia, afranchise agreement is incorporated in the Civil Code of Mongolia (2002) as one type ofcontracts. Under a franchise agreement, a franchisor grants to a franchisee license for theuse of intangible assets such as firm name, trademark, service mark, product design,packaging, as well as a business management system, plan, communication, businesstypes to obtain goods, products, works, and services. On the other hand, the franchiseeoperates in accordance with the system and cooperation program developed by thefranchisor, and pays appropriate royalty, fee, or a certain percentage of the income.