news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

2024.08.19

Word count: 3866, reading time: about 6 minutes

Introduction: As an authorized franchisee, the compliance of Shanjin Financial Holdings’ franchise business is questionable.

Author |Wang Fangran, China Business News

Several months after the “10 Billion Gold Missing Case” attracted public attention, problems with the franchise brand model are being exposed.

In March this year, several Beijing investors broke the news to the First Financial reporter:From 2019 to 2022, investment bars deposited at Shandong Gold stores could not be withdrawn and the stores have been closed.In the communication group where the reporter is, the amount of money invested by investors in this business ranges from 100,000 to 1 million yuan. In a recording of a communication between an investor and a case handling officer,The case involved six stores of Shandong Gold in Beijing, involving a total amount of RMB 400 million.. (For details, please see 《》)

During the investigation, the reporter discovered that the stores involved in the case were all operated by Beijing Zijin Jewelry Co., Ltd. (hereinafter referred to as "Zijin Jewelry"), a franchisee of the Shandong gold brand. The company's business scope only included "sales of jewelry, gold products", etc., and gold storage, custody and other businesses were beyond its business scope.

Recently, some investors reported that Shanjin Financial Holdings (Shenzhen) Gold Investment Development Co., Ltd. (hereinafter referred to as "Shanjin Financial Holdings"), the company responsible for the franchise business under the Shandong Gold brand, did not register with the Ministry of Commerce when engaging in franchise activities, and the number of directly-operated stores did not comply with regulations.

A reporter from China Business News found that Shandong Gold currently has more than 20 franchise stores in multiple provinces. These franchise stores have a unified storefront design and logo, and require a certain franchise fee, which may constitute a franchise activity in the legal sense. According to regulations, franchise activities need to be registered in the system of the Ministry of Commerce.The reporter searched the relevant section of the website of the Ministry of Commerce using the keywords "Shandong Gold" and "Shandong Gold Financial Holdings", but found no registration information.In addition, according to public information, Shandong Gold and Shandong Gold Financial Holdings may not have any directly-operated stores, which does not meet the basic franchise requirement of having at least two directly-operated stores.

The reporter from China Business Network has sought confirmation from Shandong Gold and Shandong Gold Financial Holdings on multiple occasions, but no response has been received as of press time.

Some legal experts believe that if the cooperation between Shanjin Financial Holdings and Zijin Jewelry meets the legal definition of commercial franchising, then Shanjin Financial Holdings will also face certain administrative penalties for arbitrarily authorizing franchisees without meeting basic conditions and without filing a record.

The franchise model involves multiple parties

The Yicai reporter found that Shandong Gold's brand franchise model involves multiple parties. According to the contracts, invoices, repurchase agreements and other information provided by investors, the counterparty (Party B) of gold buyers in many stores is shown as Zijin Jewelry. Some contracts have Shandong Gold's store seal and the words "Shandong Gold Beijing Operation Center" are marked in the contract corner. According to the investigation, Zijin Jewelry was once a franchisee of Shandong Gold.

According to iQiyicha, the Shandong Gold brand trademark belongs to Shandong Gold Group Co., Ltd. However, judging from the subject of the franchise authorization letter provided by investors, Shandong Gold Group Co., Ltd. did not directly authorize Zijin Jewelry to open franchise stores, but its subsidiary "Shandong Gold Holdings" authorized the franchise business.

An authorized franchisee certificate obtained by the reporter from an investor shows that Shanjin Financial Holdings authorized Zijin Jewelry as a franchisee from October 2017 to October 2020, to open "Shandong Gold" franchise stores and sell designated products.

This can also be confirmed from the side by a statement issued by Shandong Gold Group Co., Ltd. in March 2023. Shandong Gold Group Co., Ltd. stated in the statement that the company's Shanjin Financial Holdings is responsible for brand franchise business, and the scope of authorized use of the "Shandong Gold" trademark is only offline sales.

Shanjin Financial Holdings is a subsidiary of Shandong Gold Group Co., Ltd. According to public information, Shanjin Financial Holdings is located in Shuibei International Jewelry Center, Cuizhu Street, Luohu District, Shenzhen. It is 100% owned by Shanjin Financial Holdings Capital Management Co., Ltd. After penetrating the equity, Shandong Gold Group Co., Ltd. holds 37.87% of the shares.

(Source: provided by interviewees)

The main body of Shandong Gold's brand is Shandong Gold Group Co., Ltd., so why is the investment and franchise business carried out by Shandong Gold Financial Holdings?

An industry insider told the reporter that this kind of practice is not uncommon in the market franchise model.Usually, the parent company will set up a subsidiary to sign contracts with franchisees for regional strategic planning, category layout, and agency level considerations. In addition, it may also be for risk avoidance considerations.

Li Hao, a lawyer at Guangdong Guangxin Junda Law Firm, told China Business News that if Shandong Gold Group is not the entity that signs the contract with the franchisee and is not the franchisor, it does not have to bear the legal risks of the franchisor.

The compliance of the franchise is questionable

It is worth noting that as an authorized franchisee, Shanjin Financial Holdings may not comply with relevant regulations. An investor told the First Financial reporter that Shanjin Financial Holdings did not file a record in accordance with the regulations of the Ministry of Commerce when engaging in franchise activities, and the number of its directly-operated stores did not comply with relevant regulations.

In response to this question, the reporter from the First Financial Daily conducted verification.

First of all, we need to defineDoes the authorization by Shanjin Financial Holdings to open Shandong Gold franchise stores constitute a franchise activity?

Li Hao told the First Financial reporter that according to the Regulations on the Management of Commercial Franchising, commercial franchising refers to an enterprise that owns business resources such as registered trademarks, corporate logos, patents, proprietary technologies, etc., licensing its business resources to other operators in the form of a contract. The franchisee conducts business under a unified business model in accordance with the contract and pays franchise fees to the franchisor.

Li Hao believes that it is impossible to infer that Shanjin Financial Holdings is engaged in franchising activities based solely on the above-mentioned authorization letter, but if Shandong Gold franchise stores adopt a unified business model, such as a unified business image, that is, the decoration and renovation of the stores are basically the same, and pay franchise fees to Shanjin Financial Holdings, it can basically be inferred that it is a commercial franchise.

The reporter learned from several investors in Beijing that the products they purchased were all from Shandong Gold's franchise stores. The storefront designs and logos were basically the same, and all the staff claimed to be Shandong Gold's staff.

Judging from the current market information,Shanjin Financial Holdings’ licensing model meets the definition of commercial franchising to a certain extent.

(Shandong Gold Beijing Guiyou Building Jinyuan Store earlier. Provided by the interviewee)

A reporter from China Business News contacted Shandong Gold Brand Management Center as a franchisee, and a person claiming to be the franchise manager roughly revealed the previous franchise model of Shandong Gold:Franchisees pay a 30,000 yuan franchise fee and a 30,000 yuan deposit. When purchasing gold, they also need to pay a "signature fee" based on the gram. The "signature fee" outside the province is 7 yuan per gram, and within the province it is 10 yuan per gram. At the same time, Shandong Gold also has relevant requirements for the size of franchise stores and pre-training.

If the joining behavior constitutes a franchise behavior, Shanjin Financial Holdings' filing status does not comply with relevant regulations.

On the one hand, Shanjin Financial Holdings started recruiting investors without registering in accordance with the regulations of the Ministry of Commerce.

The Regulations on the Administration of Commercial Franchising promulgated by the State Council in 2007 stipulate that the Ministry of Commerce and the competent commerce departments of the people's governments of provinces, autonomous regions and municipalities directly under the Central Government are the filing authorities for commercial franchising. For commercial franchising activities within the province, autonomous region or municipality directly under the Central Government, they shall be filed with the competent commerce departments of the people's governments of the province, autonomous region or municipality directly under the Central Government where the franchisor is located; for franchising activities across provinces, autonomous regions and municipalities directly under the Central Government, they shall be filed with the Ministry of Commerce.

According to the information on the WeChat official account of Shandong Gold Brand Center, it currently has more than 20 franchise stores in 4 provinces.

However, when the reporter logged into the "Commercial Franchise Information Management" section of the Ministry of Commerce website and searched for "Shandong Gold" and "Shandong Gold Holdings (Shenzhen) Gold Investment Development Co., Ltd.", no registration results were found.

On the other hand, the number of Shanjin Financial Holdings’ directly-operated stores does not meet the requirements.The "Government Affairs Hall" section of the Ministry of Commerce website shows that those engaged in franchising activities must have at least two directly-operated stores and have been in operation for more than one year.

However, the communication records provided by investors show that the customer service of Shandong Gold Brand Center replied thatShandong Gold has never opened a directly-operated store. On the above-mentioned brand center WeChat official account page, all stores are shown as franchise stores.

(Source: Ministry of Commerce website)

Regarding the above matters, the reporter from the First Financial Daily called Shandong Gold's compliance feedback phone number and Shandong Gold Financial Holdings phone number many times, and sent an interview letter to the official email address, but no reply was received as of press time.

It is worth noting that the person in charge of the Shandong Gold Brand Center franchise told reporters that no new franchisees will be added for the time being, and the franchise may have to wait until next year. The main reason is that adjustments are being made to ensure compliance.

The business scope has been adjusted

In addition, there have been controversies over Shanjin Financial Holdings’ own business scope.

Public information shows that before June 20, 2024, Shanjin Financial Holdings' business scope included gold industry investment, equity investment, venture capital business, gold and precious metal leasing, and sales of gold and silver jewelry. It did not include the sales of gold and silver products. On June 18, 2024, Shanjin Financial Holdings' business scope was expanded to include the sales of gold and silver products.

Cheng Lin (pseudonym), an investor in Beijing, told reporters that the company's change in business scope may be related to recent complaints. In the middle of this year, she and some investors noticed that Shanjin Financial Holdings had problems with its sales qualifications. On June 16, she complained to Shenzhen 12345 that Shanjin Financial Holdings was suspected of operating beyond its scope. On June 18, Shanjin Financial Holdings changed its business scope. The regulatory feedback stated that on June 18, Shanjin Financial Holdings had rectified itself before the inspection by law enforcement personnel and would no longer be held accountable.

A person in the gold industry told the reporter that, generally speaking, if a gold shop only sells conventional products such as gold jewelry, it only needs to include "gold and silver jewelry" in its business scope. However, if it wants to sell non-decorative products such as gold bars and coins, it also needs to include "gold and silver products" in its business scope.

According to a previous report by China Business News, in the Shandong Gold disappearance incident in March, investors all purchased investment gold bars at Shandong Gold franchise stores in Beijing between 2019 and 2022. Therefore, Shandong Gold Financial Holdings' business scope should not have included the sale of gold and silver products at that time.

How to define responsibility?

How are franchise registration and business scope setting determined legally?

Li Hao analyzed to the reporter of First Financial Daily that according to the Franchise Regulations, if the franchisor does not meet the basic conditions stipulated in the Franchise Regulations and engages in franchise activities, the competent business department shall order it to make corrections, confiscate the illegal gains, impose a fine of not less than 100,000 yuan but not more than 500,000 yuan, and make an announcement. In addition, the franchisor shall file a record with the competent business department in accordance with the provisions of the regulations within 15 days from the date of the first franchise contract. If the franchisor fails to file a record with the competent business department in accordance with the regulations, the competent business department shall order it to file a record within a time limit and impose a fine of not less than 10,000 yuan but not more than 50,000 yuan.

Li Hao believes that if the cooperation between Shanjin Financial Holdings and Zijin Jewelry meets the legal definition of commercial franchising, then Shanjin Financial Holdings will face the above-mentioned administrative penalties if it arbitrarily authorizes Zijin Jewelry as a franchisee without meeting the basic conditions and without filing a record.

In addition, Shandong Gold Financial Holdings may also bear supplementary compensation liability. Yue Shanshan, senior partner of Beijing Yuecheng Law Firm, previously told the First Financial reporter that whether Shandong Gold needs to bear corresponding legal liability after the franchise store has an accident should be considered comprehensively based on the relationship between the two parties, the rights and responsibilities stipulated in the franchise contract, the specific franchise method, and the fees collected. Under the sole operation model, the brand owner often does not need to bear compensation liability. However, if the franchise store needs to pay the brand owner a brand usage fee, management fee or deposit during the operation, and the brand owner manages and supervises the operation of the franchise store, the court may determine that the brand owner has management responsibilities and should bear corresponding supplementary compensation liability.

Yue Shan further pointed out that when the franchise store operates in a joint venture model (i.e. the franchisee and the brand owner operate jointly) and a trusteeship model (i.e. the franchisee does not actually participate in the operation, but the external operating entity is the franchise store and bears the operating costs and collects profits), the court will usually determine that the two are joint infringements, and the brand owner and the franchise store shall bear joint and several liability for compensation.

WeChat Editor| Rainforest