As a business owner, who doesn't want their business to grow? There are usually two ways that prove a business has leveled up, namely by setting up a branch office independently or opening a franchise.

Yes, although at first glance it looks the same, the fact is that between branch offices and franchises have a number of differences.

One example, not all branches can be said to be franchises. Conversely, not all franchises can be said to be branches of a business itself.

Furthermore, there are no specific requirements for opening a business branch. Meanwhile, the establishment of a franchise business is specifically regulated in the Minister of Trade Regulation No 71 of 2019 concerning the Implementation of Franchising.

So, what else is the difference between a branch and a franchise, including the differences in legality that both must have? To avoid misunderstandings, check out the explanation here.

What is a Business Branch Office?
A branch refers to an additional unit of a parent business or company that operates in a separate location.

Although tied to the parent business, branches have the authority to execute lower-level business operational decisions and are in practice subject to the parent company's supervision.

In this case, the branch shares the same brand, products, and services as the parent company. However, the management of the branch company is responsible for the daily operations and performance of the branch.

What is Franchise?
Franchise is defined as a special right owned by an individual or business entity to a business system with business characteristics in order to market goods and/or services that have proven successful and can be utilised and/or used by other parties based on a franchise agreement. This is as stated in Article 1 of MOT 71/2019.

Simply put, a franchise is a business model in which a party that owns a certain brand or business concept (franchisor) grants the right to another party (franchisee) to open and operate a business using a predetermined brand and system.

In this case, the franchisee pays royalties or other fees to the franchisor in return. However, franchisees must also adhere to the guidelines and standards set by the franchisor.

How are the Legal Differences for Branches and Franchises?
When viewed in terms of legality, here are some differences between branch offices and franchises:

Branch Office
Business licences for the opening of a new branch will follow the business licences that the parent company already has. Given that the branch company is only an ‘extension’ of the parent company.

Yes, to be able to open a branch office, the parent company must fulfil a number of requirements as stipulated in the Investment Coordinating Board Regulation No. 13/2017, which are as follows:

• Deed and decree of the parent company
• NPWP of the parent company
• Business licence of the parent company
• Deed of branch office opening and appointment of branch office head
• KTP and NPWP of the branch office head
• Statement letter about the business location of the branch office

For operational licences, each branch office still has to apply for them. Usually, operational permits are issued by authorised agencies/institutions in accordance with the business sector of the business actor.

In addition to the operational permit, other legalities that need to be taken care of are the basic requirements of business licensing. Broadly speaking, the following are the basic requirements of business licensing:

• Building Approval (PBG)
• Certificate of Functioning (SLF)
• Conformity of Room Utilisation Activities (KKPR) or location permit
• Environmental approval
• Franchise

For franchises, there are several provisions that need to be complied with as stipulated in Permendag 71/2019. Unlike the opening of an ordinary business branch, a franchise business requires a Franchise Registration Certificate (STPW) as a legality requirement.

The STPW itself serves as proof of prospectus registration or agreement registration given to the franchisor and/or franchisee.

The franchisor is required to register the franchise offering prospectus, while the franchisee is required to register the franchise agreement to obtain the STPW.

The franchise offer prospectus itself at least includes things like:

• Franchisor identity
• Legality of the franchise business
• History of business activities
• Organisational structure of the franchisor or continuing franchisor
• Financial statements for the last two years
• Number of business premises
• List of franchisees or advanced franchisees
• Rights and obligations of the franchisor or advanced franchisor and franchisees or advanced franchisees
• Franchisor's intellectual property rights, including IPR registration status

Meanwhile, the franchise agreement is a written agreement between the franchisor and the franchisee. Where this agreement becomes strong evidence and can be the basis for doing things that have been agreed upon. STPW is valid for a period of five years and can be extended for the same period.

Franchise agreements generally contain the granting of permission to use licences and trade names by the franchisor to the franchisee along with procedures for using the licence.

In addition, the franchise agreement also includes compensation in the form of royalties that the franchisee will give to the franchisor.

Closing
Both branch offices and franchises have the same goal, which is to expand the business and increase the profits of business actors.

There are many considerations that must be considered to determine which business system you will run, it all depends on your priorities and choices.

Whatever the business system, make sure to know and pay attention to the legality of the business.

If you choose to open a branch office, make sure to take care of the parent company's business legality first such as the deed of establishment, NPWP, NIB, and operational business licence.

Likewise, with a franchise business, you also need to pay attention to legalities according to the provisions such as STPW and franchise agreements. This becomes strong and basic evidence so as to reduce the risk of legal problems in the future.