Franchise on Treaties Law in Indonesia as Continuous Business Model

Today the growth of the business world is growing so rapidly, it is also supported to expand the business which is more varied, including through franchise (Franchise). Which of these principles for some entrepreneurs is considered more effective, effective and profitable in the development of a business. In Indonesia, the regulation of franchises is based on agreements made by the parties on the basis of the applicable law, in this case the Government Regulation and the Minister of Trade Regulation. Franchise is a form of business that gets a lot of attention from business people, because it can be one way to increase economic activity and give opportunity to weak economic class to try, this means, Franchise can provide job opportunity, equality and also create field work for the community. In addition, the profits of this business are low cost and the materials already provided are also not too take place so vast, franchise recipients no longer need to bother developing their business by building a good and famous image. It is enough to ride on the famous fame of the franchisor, so franchisees who are generally small entrepreneurs will enjoy the success and luck of large-scale companies without having to carry out their own research and development, marketing and promotion that usually requires enormous expenses that the small businessman is unlikely to bear.


Introduction
Basically, franchise is an agreement on delivery method of goods and services to customers. Franchisor grants licenses to franchisee to distribute goods and services in certain areas under franchisors' name and identity in and the business activities should be conducted in accordance to procedures set by the franchisor providing assistance to to franchisee. As a return, franchisee pays money in the form of initial fee and royalty (Suharnoko, 2004).
Franchise is also a business settlement in which a certain company (franchisor) grants a right to independent party (franchisee) to sell product or services of the franchisor based on the procedures set by franchisor. Franchisee uses brand, goodwill, product, services, distribution procedures, skills, operational system and supporting facilities of franchisor. For the return, franchisee pays royalty (cost for management services) to franchisor as stated in franchise agreement.
In order to improve stewardship of franchise business in Indonesia, there should be an active effort to develop national businessmen especially those of small and medium business into competitive franchisors which are able to compete in domestic and international market. Thus, government should take an active participation to manage franchise business (Satjipto Rahardjo, 1978, page 13)  Franchise is favourite business in Indonesia. It is reflected from the increasing number of franchisee. General Chief of Franchise and License of Indonesia, Levita Ginting Supit, states that market value of franchise business in 2017 is 200 trillion rupiahs for domestic or international franchise business. It shows that franchise is potential business in improving economy and absorbing employees in Indonesia.
Franchise businessmen in Indonesia expect that revision of regulation on franchise by Indonesian government is able to develop industry. Levita Ginting Supit, general chief of Franchise and License business association, said that regulation is problem of franchise business in Indonesia. She also said that Franchise association and government represented by Ministry of Trade is revising government regulation to support and protect domestic franchise business from the coming of international business.
However, prevailing regulation should support franchise businessmen to develop their business. Their business development will give positive influence for Indonesia economy because of the tax paid, improvement of local product use, and increasing number of demand of local product. Levita states that revision of regulation has been conducted since last year and it is now close to its completion. Franchise business association is also involved to give input for the revision in order that government and businessmen are able to develop the franchise business.
In addition, Levita also stated that revised version of regulation will be in effect in the middle of 2018. The association expects that the revision will be able to create conducive business atmosphere both for domestic and international business. Further, she said that domestic franchise business should be host firms in our own land. International franchise businesses should also be run by Indonesian in the form of business partnership. Therefore, it is expected that regulations will be able to support domestic and international businessmen to develop franchise business.
Research problem explored in this article is that how prevailing laws are able to give protection amidst the development of franchise business in Indonesia? What if it is reviewed by using Islamic law; and how is the development of international franchise business?

2.History of Franchise Business
Franchise was started in America by company producing Singer sewing machine in 1850's. At that time, distribution of Singer covered almost all area of America. Besides selling sewing machines, all distributors also provided after-sales service and spare parts. In addition, the distributors provided maintenance and repair service to customers (Deden Setiawan, (2007) page: 13).
However, according to another source, company following Singer is not Coca Cola but General Motors, an automotive company, founded in 1898. The pattern was then accommodated by oil industry founding gas station network and also soft drink industry. They were producers without having distribution channel for their products. Therefore, they made use franchise system at the end of 18 th century and at the beginning of 19 th century. After World War II, retail industry has transformed their business from product-oriented into service-oriented industry. It was because middle-class people were highly mobile and settled in the suburb area; then there were many regular or drive-in restaurants specializing in fast-food menus.
At first, franchise was not familiar in Indonesian Law because it is not our culture or business tradition prevailing in Indonesia. However, due to globalization, franchise has been taken into culture and law order o Indonesia (Tengku Keizirina Devi Azwar, (2005), page 1-2).

Definition of Franchise
Franchise implies that a franchise businessman has freedom to run his own business in certain area (Richard Burton Simatupang, 2003, page 56). Franchise is a method of conducting business; it is also a method to deliver product or services to the people.
Rooseno Harjowidagdo states that franchise is granting rights by franchisor to Franchisee to use unique or special characteristic of their business in trading goods or services in the form of products or other forms such as company identity (logo, brand and company design, business plan usage and other supporting efforts, operational hours, working clothes and employee's performances); thus special business characteristics of franchisee are similar to those of franchisor" (Rooseno Harjowidagdo, 1993, page 1).
On the other side, according to Douglas J. Queen, franchise is method to expand marketing and business network by using similar marketing and operational standards. Franchise licensee buying certain business might take benefit and customer awareness for the brand, system and other services provided by franchisor" (Douglas J Queen, 1993, page 40).
Regulation of Ministry of Trade of Indonesia no 53 of 2012 on Franchise Organization states that franchise is special right possessed by person or business enterprises for business system having special characteristics in order to sell products and/or services that might be used by other parties based on certain agreement. In addition, franchise might be defined as system of marketing goods and services in which a franchisor grants special right to individual or small to medium scale business (franchisee) to conduct certain business system based on predetermined procedures, duration of time, and certain area coverage (Richard Burton Simatupang, 2003; page 56).

Types of Franchise Agreement
According to Suhrawardi K Lubis, franchise is granting right by franchisors to franchisee to use unique or special characteristics or business identification mark of franchisor in the form of product and other business characteristics including company identity (logogram, brand, company design, marketing plan usage and extensive supports, operational time, clothes and performance of employees) to deliver products/services. Therefore, uniqueness of business or special mark of identification of products or services of franchisee are similar to those of franchisor". Brayce Webster states that there are three types of franchise. They are: a) Product franchising. It is type of franchise in which franchisor grants license to franchisee to sell their product and franchisee functions as product distributor of franchisor. Often, franchisees are granted exclusive rights to market certain products in certain areas. The example of this type of franchise is car dealer and gas stations. b) Manufacturing franchise franchisor. In this type of franchise, franchisee sells certain goods to sell products by using production standards and brand which are similar to those of franchisor. This type of franchise is commonly used in producing and distributing soft drink such as Coca Cola and Pepsi.
Business format franchising. It is franchise type in which franchisee conducts certain business activities by using franchisor name. For the return of using franchisor name, franchisees are required to follow certain operation method and supervised by franchisor to determine materials, location and design of business, marketing hour, requirements of employees and others. In addition, franchisor grants all business concepts including marketing strategies, guidelines and business operating standards and other supports in operating franchise. Therefore, franchisee has inseparable identity from franchisor (David, 1995).
In franchise, legal foundation of franchise is contract between the two parties. Franchise contract states that franchisee is independent contractor and not agent or employees of franchisor. However, franchisor is able to rescript the contract if franchisee violates the requirements stated in contract. In addition, license give is an agreement granting right and special authorities to franchisee. According to Mariam Darus Badrulzaman (2005 page 27), elements contained in franchise are: 1. It is an agreement. 2. It includes products/services delivery by using brand of franchisor.
3. Franchisor provides franchisee supports on marketing, managements and other technical supports. 4. Franchisee pays certain amount of fee or royalty for the use of brand of franchisor. The agreement is valid for those involved. The agreement could not be cancelled -except it is approved by both parties for reason that is referring to prevailing regulations. The agreements should be based on good will (Mariam Darus Badrulzaman, 2005 page 27). Thus, franchisor agreement made by franchisor and franchisee is prevailing regulation for both. Indonesian Civil Code doesn't put franchisor agreement as statutory agreement like sales and purchase agreement, rent agreement and others. There must be mutual approval for an agreement and it will be basis for upcoming requirements. After all requirements are approved, then the agreement is valid as regulation for related parties as stated in article 1338 verse 1 of Indonesian Civil Code.
In addition to the two principles, there must be also good will for both making agreement. Principle on good will is stated in article 1338 verse 3 of Indonesian Civil Code stating "an agreement should be made with good will basis". Parties involved in an agreement should obey the provision of article 1320 of Indonesian Civil Code on the requirements of eligibility of an agreement namely approval of relevant parties, law competence of relevant parties, legal cause and others.

Contract Law Aspect In Franchise
Contract is an English term. In Dutch, it is called Overeenscom-strecht. In its classical view contract is also called "agreement". However "contract" is the most modern, most extensive and most-commonly used term in business context. Contract is a promissory agreement between two parties that may modify or dismiss legal relation (Munir Fuady, 2002, page 91). Definition of contract or agreement is stated in article 1313 of Indonesian Civil Code stating "An Agreement is legal act in which one party binds himself to one or more parties".
Further, it is also stated that all actions have legal impacts (rechtgevolg) and it is only legal action causing legal impact. In article 119 of Indonesian Civil Code, there are two types of contract namely nominaat contract (statutory/benoemde) and inominaat contract (unstatutory) which are under book III of Indonesian Civil Code. Innominaat contract comes up and develops in society such as contract of productions haring, joint venture, contract of work, construction contract, leasing, franchise, contract management, and technical assistance contract. Nominaat contract is that known and stated in article 1319 of Indonesian Civil Code stating "all agreements, either with special name or those unknown under special name, should obey general regulation stated in this chapter and previous one" (Syahrin Naihasy, 2005, page 67).
Nominaat contracts are those such as sales and purchase contract, exchanges contract, rent contract, civil partnership, bequest, bailment contract, lending contract, mandate, debt warranty contract, settlement contract, and others. To complete contract law, then a nominaat should fulfil five aspects (Syahrin Naihasy, 2005; page 68). They are 1. Principles of law, either written or unwritten one; 2. Law subjects; to support the right and obligation; 3. Law objects; which is closely related to performance basics; 4. An approval as the manifestation of willingness of those related parties on the substance and object of contract; 5. Legal consequences which is closely related to right and obligation of relevant parties. 34 free to make agreement which is either stated or not stated in prevailing legislation. b. Conceptualism principle. It is reflected from article 1320 verse (1) of Indonesian Civil Coe. This article states that one of the requirement for an agreement to be valid is approval of both parties. Conceptualism principle requires that agreement may not be formulated formally as long as both parties approve it. The agreement might be reached due to alignment of willingness and statements of both. c. Principle of Pacta Sunt Servanda or principle of law certainty. It is related to the impact of agreement. Principle of pacta sunt servanda requires that judges or third parties should respect the substance of contract. They may not interfere contract substance. The principle might be seen in article 1338 verse (1) of Indonesian Civil Code stating that "an agreement made is valid as regulation". d. Principle of good will (Goede Trouw). It is reflected from article 1338 verse (3) of Indonesian Civil

Principle of Contract Law
Code stating "An Agreement should be based on good will". The principle requires that relevant parties, namely creditor and debtor should conduct the contract substance based on trust or belief or good will. It is also closely related to Personality principle requiring that contract is made for the interest of certain party. It is shown in article 1315 and 1320 of Indonesian Civil Code stating "in general, a person could not bind himself or make an agreement for others except himself". In Indonesia, legal protection for franchise is stated in Book III of Indonesian Civil Law as general regulation and Government Legislation no 42 of 23 July 2007 on franchise. Article 1 verse (1) states the definition of franchise as "special right possessed by person or business entity for business system having special characteristics to deliver products/services and they may be used by other parties based on franchise agreement". There are two parties involved namely franchisor and franchisee who binds themselves to each other by franchisor agreement.
Article 1 verse (2) states that franchisor or franchisor right giver is person or business entity granting right to use his franchisor to franchisee. In addition, in article 1 verse (3), it is stated that franchisees are persons or business entities using franchise given by franchisor.
Furthermore, article 3 states that there are six requirements that must be fulfilled for franchise. They are: a. Having special business characteristics giving competitive value for the franchise that cannot be imitated and making customers feel attracted; b. The business is proven to be profitable. The franchisors have been knowledgeable in the business field for more than 5 years and they are able to tackle problems for their business to survive and become more profitable. c. The franchise has excellent standard for goods and services offered. The franchise needs written standards in order that the franchisee is able to run the business based on fixed working plans known as standard operating procedures. d. It is easy to teach and apply that inexperienced franchisee may run the franchise with the assistance of franchisor. e. There should be continuous support from franchisor to franchisee. f. There should be registered intellectual rights. Government legislation no 42 of 2007 article 4 verse (1) states that franchise is conducted based on written agreement between franchisor and franchisee by taking Indonesian law into account. In addition, on article 4 verse (2), it is stated also that for agreement written in foreign language as stated in verse (1), it must be translated into Indonesia. Thus, if the franchisor is foreigner and franchisee is Indonesian, then the agreements should refer to government legislation no 42 of 2007 on Franchise.
Then, in article 6 verse (1) it is stated that franchise agreement may cover clauses of granting right for franchise to appoint other franchisee and in verse (2), it is also stated that franchisee having right to appoint other franchisee should have and run the franchise at least for 1 (one) year.
Article 7 states that franchisor must give franchise offering prospectus to candidate of franchisee. In addition, franchisor is also required to provide continuous assistance in the form of training, guidance of management, marketing, research and development to franchisee (article 8). Franchisor should also prioritize the use of domestic goods and services as long as they comply with goods and services standards set by franchisor (article 9 verse 1).
Provision and procedures to issue Registration Letter o franchisor is stated in Legislation of Ministry of Trade of Indonesia no 12/M-DAG/PER/3/2006 on 29 March 2006. The legislation states that franchisor is put in the written in Indonesia and contains: a. Name and addresses of related parties; b. Name and type of intellectual right or special business characteristics such as management system, marketing procedures or product layout or distribution of franchise object; c. Right and obligation of relevant parties, assistance as well as facilities provided by franchisor in Indonesia to franchisee; d. Area coverage (zone) of franchise; e. Agreement duration of time; f. Termination, continuation and discontinuation of contract; g. Dispute settlement; h. Payment