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8 April 2015

State registration of franchise agreements is cancelled

The Parliament of Ukraine cancelled the state registration of franchise agreements that has been one of the major pitfalls hindering franchising development in Ukraine.

Law on Business Deregulation: 

On 12 February 2015 the Parliament of Ukraine adopted the Law of Ukraine "On Amendments to Several Legislative Acts of Ukraine regarding the Facilitation of Conditions for Doing Business (Deregulation)" (the "Law on Business Deregulation"). The said Law is an important part of the extensive business deregulation plan to be shortly implemented in Ukraine. Among others, the Law on Business Deregulation stipulates cancellation of the mandatory state registration of franchise agreements. The relevant amendments enteredinto force on 5 April 2015.

Requirenments of state regisration:

The mandatory state registration of franchise agreements, amendments thereto and termination thereof are required by the Civil Code of Ukraine and the Commercial Code of Ukraine.

Even though failure to register the franchise agreement does not entail either nullity or invalidity thereof, absence of the state registration could result in the following negative consequences directly set forth by both codes: 

(a) the parties to a franchise agreement are entitled to refer to the franchise agreement as well as amendments thereto in their relations with the third party only after its state registration.

Notably, under the case law, the third parties are defined very broadly for the purposes of franchise agreements, i.e. as any persons, except for the parties to the particular agreement, including other natural persons, legal entities, state agencies i.e. tax, customs authorities. Consequently, in some cases the tax authorities refused to accept the franchise agreement for the tax purposes in the absence of its due state registration. More useful information on the point you can find in the article "Ukraine: recent case law on franchising (new developments and trends)".

(b) the parties are deprived of the right to refer to the unregistered franchise agreement in case of a dispute.

Absence of the procedure for registration of franchise agreements 

The major problem with the state registration of franchise agreements in Ukraine had been the absence of the legislative framework envisaging the relevant registration procedure. As a result, there was no coherent approach among the competent authorities regarding this issue. That is, some of them refused to register the franchise agreements in the absence of the relevant implementing legislation, some merely put on a relevant agreement stamp ‘registered’ which made its legal status unclear. Thus, it became a standard practice in Ukraine not to register the franchise agreements.

Finally, in order to fill the said lacuna, on 29 September 2014 the procedure for registration of franchise agreements was approved by the Ministry of Justice of Ukraine and it should have entered into force on 21 April 2015. 

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