Expanding Your Business: Own Branches, Franchise or Distributors, and Which to Choose

The core answer

When a business starts selling well in one place, the first thought is usually to expand: open your own branches, sell franchises, or find distributors in other provinces. All three use the same name and products, but they differ greatly on who invests, who controls quality, who carries the risk, and which laws apply.

The rule (Thai law). Thailand has no dedicated franchise law. Franchise and distributor agreements are governed by the contract rules in the Civil and Commercial Code and by other laws depending on the type of business. Two points need particular care. A licence to use a registered trademark must be in writing and registered under the Trademark Act B.E. 2534, section 68. And the conditions a franchisor sets must not be an unfair trade practice under trade competition law, on which the Trade Competition Commission has issued guidelines specifically for franchise businesses.

Our practical view. Do not choose out of a wish to grow fast. First ask whether the business is ready to be copied. If it still depends on the owner, has no manual, no system, and you cannot yet see clearly what a single shop earns, any form of expansion will multiply the problems. The right route usually turns on three things: how much control of the customer experience you need, how much you can invest yourself, and how fast you want to grow.

This guide helps you choose a route and points out the contract terms to prepare. For readiness before opening a real branch, see before opening a second branch: a readiness checklist. If you are on the buying side of a franchise, see reviewing a franchise agreement before buying.

1. How do the three routes differ?

This table is an overview, not a fixed answer. A business that sells a service relying on the owner's skill usually finds franchising hard, while goods that are easy to store, ship and resell often suit distributors.

2. Ask yourself before choosing

1. Can the business be repeated without the owner present? Are there procedures, standards and documents others can follow?
2. Does the existing shop actually make money? Look at the real costs of a single branch, not sales alone. Talk to your accountant about profit per unit and cash flow.
3. Do we already own the name and trademark? If it is not registered, someone else may register it first once the brand spreads. See trademark registration.
4. How much control are we willing to give up? If customers complain about the quality of a branch that is not ours, what can we do?
5. Do we have the people and systems to support it? Franchisees and distributors need a team for training, quality inspection and delivery.
6. Which risks can we not accept? For example, falling quality, damage to reputation, or cash tied up in stock.

If you cannot answer questions 1 and 2, go back and fix the existing business first. No form of expansion will help.

3. Expanding with your own branches

Branches give the greatest control, but the money and the legal burden stay with us. What to look at:

• Legal form. Is the branch part of the existing company, or a new company? Each has different effects on liability and tax. Consult your accountant and a lawyer.
• Registering the branch. You generally have to notify the Department of Business Development, and there are value added tax matters for each place of business. For details see before opening a second branch.
• The lease. A lease of immovable property longer than three years must be in writing and registered with the competent official under Civil and Commercial Code section 538. Without that, it can be enforced for only three years.
• Employees and work rules. Check whether the total headcount reaches the threshold that requires work rules, and that employment contracts are consistent across branches. See work rules.
• Shared contracts and documents. Who signs for the company at each branch, and do all branches use the same standard documents? See controlling contracts and employee documents across several branches.
• Cash control. Counting cash, banking it and checking stock should follow a procedure that does not depend on any one person.

The advantage is that if a new branch does not work, we decide whether to close or adjust it ourselves. The disadvantage is that the money and people needed to open even one branch are usually more than expected, and the owner tires along with it.

4. Expanding by franchise

A franchise is a licence for another person to use a name, trademark, system and know-how to run a business, with the franchisee paying the agreed consideration. We are the franchisor, so we must deliver what we sell and must make sure franchisees follow the standards.

4.1 Readiness before selling

• A pilot business that is really profitable, with figures you can back up, not just claims.
• A registered trademark in the relevant classes of goods and services.
• An operations manual, a training system and a support team.
• An information document for prospects before they decide, with no exaggerated advertising, for example no guaranteed returns without evidence.
• A fair and clear franchise agreement.

4.2 No dedicated franchise law, but trade competition guidelines

Thailand has no franchise act that requires franchisors to make disclosures or to register (unlike some countries). The contract is therefore the main tool. However, the Trade Competition Act B.E. 2560 prohibits unfair trade practices that take advantage of others. The Trade Competition Commission has issued guidelines on unfair trade practices in franchise businesses, which took effect around early 2020 and have since been amended. Check the title and the latest version on the Commission's website. A franchisor should read the guidelines before drafting the contract, because terms that look exploitative, such as forcing the purchase of materials from the franchisor alone without good reason, barring the franchisee from other business too broadly, or changing terms unilaterally, may be treated as unfair practices (these are examples to give an idea, not a complete list from the guidelines).

4.3 Licensing the trademark

Section 68 of the Trademark Act B.E. 2534 requires that a licence for another person to use a registered trademark be in writing and registered with the Registrar. So if the franchise involves a registered trademark, the licence should be registered, with the details set by the Department of Intellectual Property. The franchisor must also keep controlling the quality of use, or the strength of its rights in the mark may be affected.

4.4 Terms a franchisor should consider

• Scope of rights, territory, term and renewal.
• Fees and payment dates, set out by clear criteria.
• Operating standards, training, inspections, and the consequences of non-compliance.
• Use of the trademark, confidential information and restrictions after the contract ends (restrictions must be reasonable and not too broad).
• Termination, buy-back, transfer of rights, and what the franchisee must return or stop using.
• Liability to customers, insurance and customers' personal data.
• Dispute resolution.

A franchise buyer should read the contract differently. See reviewing a franchise agreement before buying and our franchise advisory service.

5. Expanding through distributors

A distributor or dealer in practice usually buys goods to resell, invests in its own stock and shop, and sells in its own name. The manufacturer expands its market without investing in branches, in exchange for less control.

5.1 Key contract terms

• Territory and exclusivity. State the territory clearly, whether it is exclusive, whether the distributor may sell outside it, and whether the manufacturer may sell there itself.
• Targets and evaluation. Minimum sales, the evaluation period, and the consequences of falling short.
• Orders and payment. Credit terms, delivery, title, and risk in transit.
• Use of name and trademark. Only to sell the goods supplied, and no registering of similar names.
• After-sales service. Who gives the warranty, repairs, takes returns and handles complaints.
• Customer data. Who owns it, how far it may be used, and personal data issues.
• Term and termination. On termination, who buys back stock and who deals with customers and remaining inventory.

The last point causes disputes most often. See terminating a distributor agreement: stock, brand and customers. For the difference between a reseller, a broker and an agent, see broker, agent or reseller.

5.2 Watch restrictions on price and competition

Terms that restrict competition, such as fixing the resale price or barring sales to certain customer groups, may carry risk under trade competition law, depending on the facts and market power. Have a lawyer check before putting terms of this kind into the contract.

6. Mixed approaches

Many businesses do not pick just one route. As a hypothetical example, a restaurant opens its own branches in its home province to keep standards, then franchises in distant provinces where it has no team, or a consumer goods maker sells through distributors in other provinces and runs its own online channel. What matters is that the contracts do not conflict. If a distributor has exclusive territory, for example, the manufacturer must not sell online into that territory and compete with the distributor without agreeing it.

7. Liability to customers and reputation

• Make it clear to customers who the seller is. Receipts, signage and the website should name the actual legal entity.
• Set out insurance, warranty and complaint handling in the contract.
• Inspect standards on a cycle. If you see a problem and do nothing, your reputation suffers before the contract does.
• For customers' personal data, agree who is the data controller. See PDPA.

8. The order of trials

1. Fix the existing business so it is profitable and repeatable.
2. Register the trademark.
3. Write the manual and standards.
4. Pilot a second branch or one distributor.
5. Review the results and adjust the contract before expanding further.
6. Expand when the system can support it, not when someone asks.

9. Checklist

• The existing business is genuinely profitable and can be repeated without the owner.
• The trademark is registered in the brand owner's name.
• The expansion form has been chosen based on the control, capital and speed wanted.
• The franchise or distributor agreement is drafted fairly, and the unfair trade practice guidelines have been read.
• The trademark licence is in writing and registered.
• Territory, exclusivity, targets and the consequences of missing them are stated.
• Termination, stock, customers and ceasing use of the name are provided for.
• Receipts, signage and the website name the true seller.
• The accountant has been consulted on profit and tax for each form.

Further reading

• Before opening a second branch: a readiness checklist — if you choose your own branches
• Reviewing a franchise agreement before buying — the franchisee's view
• Terminating a distributor agreement: stock, brand and customers — problems at the end
• Broker, agent or reseller — comparing sales models
• Controlling contracts and documents across several branches — setting up the paperwork
• Trademark registration — before anyone uses your name

Before choosing between branches, a franchise or distributors, make sure the existing business can be repeated, the name is yours, and the contract says clearly who is responsible for what when the relationship ends.

We draft and review franchise agreements and distributor agreements, and help with trademark registration and licensing. For an initial consultation, call +66 92 254 2045 or send us the details. See also franchise and trademark registration.

This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.