BUSINESS TYPES AND ESTABLISHMENT PROCEDURES FOR CHAINS OF SUPERMARKETS, CONVENIENCE STORES, RESTAURANTS
Chains of supermarkets, convenience stores, and restaurants are a popular business type because of their benefits. However, this type of business requires a number of conditions, and the procedures for establishment and operation are also complicated. Therefore, in order to establish and manage the business system properly, enterprises should be aware of the relevant legal issues before setting up a chain of supermarkets, convenience stores, and restaurants. This article will discuss the information related to the above issues, starting from an overview to a detailed comparison between the types that investors can choose and specify the conditions and establishment procedures.
1. Overview on Chains of supermarkets, convenience stores, and restaurants
Regarding supermarket chains, according to Decision No. 1371/2004/QD-BTM, supermarkets constitute a type of modern stores; being general or specialized; having abundant and diversified kinds of goods with assured quality; meeting criteria on business space, technical facilities and management as well as business organization capabilities; adopting civilized and convenient service modes so as to satisfy the customers' shopping demand. In addition, Clause 11, Article 3 of Decree 09/2018/ND-CP stipulates that a mini-supermarket means a retail store of an area less than 500 m2 as part of a supermarket complex as prescribed by law. Accordingly, supermarket chain is a term referring to a collection of supermarkets according to the above definition that belong to one managing enterprise, are uniformly applied a business method, and unified in terms of activities, goods, and forms. food, price…
In terms of convenience store chains, according to Clause 10, Article 3, Decree 09/2018/ND-CP, convenience store means a retail store which sells fast [everyday] consumer goods comprising food, beverages, non-prescription pharmaceutical drugs, functional foods and health products, cosmetics and other products for daily consumption. Accordingly, a convenience store chain is a collection of convenience stores that, according to the above definition, have the same brand, can be franchised or managed by a single business owner.
About restaurant chains, unlike the two mentioned types related to business goods and services, a restaurant chain, which is owned by a business or franchise agreements, is a collection of business establishments specializing in processing and serving food and beverage products to meet the needs of customers.
Thus, the similarity between chains of supermarkets, convenience stores, and restaurants is a chain of business establishments or locations (two or more) in different locations but under the same brand name, under the unified ownership and management of an enterprise (which can be called a subjective enterprise or a business entity), and in some cases, through franchising.
However, there is a relatively clear distinction between the above types. Supermarkets are large, offer a wide range of goods, and are often owned by the same business. However, convenience stores are smaller, offering only convenient, ready-to-use goods and services, and usually operating through franchising. For restaurants, it is different from the above two types in terms of business items, which can be owned by a business or franchised.
To have a more specific view of chains of supermarkets and convenience stores, we give the following comparison as an example: Despite operating in the same retail business, the Co.op Food supermarket chain is owned and managed by the Union of Trade Cooperatives of Ho Chi Minh City (Saigon Co.op), trading a variety of goods. Similarly, Lotte Mart, is a multinational supermarket chain specializing in providing online shopping services that belongs to the Lotte Group. Meanwhile, convenience stores like Circle K deal in convenience, instant-use, and franchised items.
In the scope of this article, we will not analyze the case of chain businesses in the form of franchising since the franchising procedure is different from the procedure for opening a new chain of supermarkets, convenience stores, and restaurants. Also, in this article, we will only analyze the legal issues of supermarket chains as a typical business type because those of convenience store chains and restaurant chains are the same except for some minor aspects in the establishment process.
2. Appropriate business type for a chain of supermarkets, convenience stores, and restaurants
A chain business type such as a supermarket chain should be established and managed by a unified business entity. In fact, chains of supermarkets, convenience stores, and restaurants are usually established in one of two ways: by setting up an individual household business or by setting up an enterprise. Each form has its own advantages and disadvantages; the information DHT mentions below will help readers make the right choice for their requirements and needs.
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Individual household business |
Enterprises |
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Characteristics
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A household business is registered, established by an individual or household members who are responsible for all their assets for the household’s business activities [1]. |
Enterprise is an organization with its own name, assets, and transaction office that is established or registered for establishment under the provisions of law for business purposes [2]. |
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Advantage |
- Modest scale - Simple accounting book mode -Suitable for small business individuals |
- The organizational structure and the management apparatus are clear. - Have legal status. - Unlimited number of business locations, branches, and employees |
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Disadvantage |
- Have a single location, limit the number of employees (no more than 10 people) - No legal entity, no seal and it is not allowed to set up branches or representative offices - Responsible for individual business owners’ all assets - Individuals and household members may only register one household business nationwide. - Nature of business activities |
- Complicated procedures for establishment, adjustment and management |
The procedure to open a household business is quite simple, basically, if your aim is personal business, this is the most suitable form. However, for a supermarket chain or a chain of convenience stores and restaurants, setting up a business household will be difficult to manage because there is no connection unified by an enterprise with enough departments to operate, and it is also challenging to develop extensively in the long term because the business expansion capacity of this form is very limited.
On the contrary, the establishment of a business as the management company for a business project involving a chain of supermarket convenience stores, and restaurants will be more optimal. The enterprise has a complete and strict personnel apparatus for management and operation. The ability to expand the business in this form is also better due to its legal status, therefore, it has the full basic conditions to carry out large transactions, market expansion activities... In addition, the owner also only has limited liability to the extent of their capital contribution when setting up a joint stock company or a limited liability company, helping the owner maximize profits while minimizing legal and personal property risks during the business process.
3. Process of establishing a chain of supermarkets, convenience stores, and restaurants.
STEP 1: Business Registration
Currently, business owners of a chain of supermarkets, convenience stores, and restaurants can choose from several types of businesses to suit their demands, such as:
- Joint Stock Company
- Single-member limited liability company or multi-member limited liability company.
In terms of the establishment of the enterprise, DHT advises on the following issues:
(1) Determining scope of business
Business owners of supermarket chains and convenience store chains could choose from a number of business lines as follows:
- Wholesale and retail of all kinds of items: food, processed foods, beverages (wine, beer,...), cigarettes, household appliances, goods related to other supermarket activities...
- Import the above items.
Specifically, according to Decision No. 27/2018/QD-TTg dated July 06, 2018, the enterprise could register for business lines as follows:
- Retail sale in non-specialized stores with food, beverages, tobacco or aztec tobacco predominating (4711);
- Other retail sales in non-specialized stores (4719);
- Retail sale of food in specialized stores (4721);
- Retail sale of food products in specialized stores (4722);
- Retail sale of beverages in specialized stores (4723);
- Retail sale of tobacco products in specialized stores (4724);
- Other non-classified businesses support service activities (8299),…
On the other hand, owners of restaurant chains can choose from these business lines:
- Restaurants and mobile catering services (5610)
- Providing food service under occasional contracts with customers (5621)
- Other food service (5629)
- Beverage service (5630)
(2) Preparing registration dossier
● Dossier
- An application form for business registration;
- The company charter;
- List of members in case of multi-member limited liability companies/ List of shareholders in case of joint stock company;
- Power of attorney + Notarized copy of ID card of the applicant;
- Notarized copies of IDs/Passports of members/shareholders/owners and legal representatives.
● Place of submission
Register online via the National Business Registration Portal with a public digital signature or use a business registration account.
● Processing time
The application will be processed within 3 working days from the date of receipt.
● Processing fee
Enterprises are exempted from fees for digital registration dossiers. However, the fee for publishing business registration details is: 100,000 VND/time.
STEP 2: Set up branches/locations for the business chain
After registering a business, an enterprise can establish a branch or a business location to serve as the business base of a chain of supermarkets, convenience stores, and restaurants.
DHT offers the following comparisons so that businesses can choose the right type for their needs.
First of all, branches and business locations have the following similarities:
+ They are all dependent units of the enterprise, have no legal entity and are not limited in the number of employees upon establishment;
+ All perform business functions of the enterprise based on the registered business lines of the enterprise.
However, branches and business locations also have their own advantages and disadvantages, DHT offers some comparisons for readers' reference as follows:
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Branches |
Business location |
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Advantages |
- Having the right to carry out business activities as enterprises - Organizing business activities and other issues of internal branches are more active, such as: + Allowed to sign economic contracts; + Allowed to have and issue their own invoices; + Can choose the form of independent or dependent on enterprise tax accounting; + Having the right to establish business locations directly under branches. |
- The establishment and operation termination of business location are simpler and more cost-saving than those of branches. - Paying fewer taxes and tax declarations are easier than those of branches.
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Disadvantages |
- Procedures for establishment, operation management and dissolution are complicated (similar to enterprises); - Arising a number of obligations relating to taxes, which leads to time-consuming and financial problems |
- Not allowed to enter into economic contracts - Only accounted for depending on the enterprises, so it is not allowed to register or issue invoices. |
For the business types of supermarket chains, convenience stores, and restaurants, DHT considers that setting up business locations will be the optimal choice for businesses, because:
● Establishment procedures, operation management, and termination processes for business locations are simpler and more cost-effective than those for branches, while the operational functions of the two forms are nearly equivalent. From there, business expansion can also be made simpler by quickly establishing new business locations;
● Negligible tax obligations, simple tax declaration and management;
● Save shipping costs, easily take care of customers and partners;
● In particular, business locations completely meet the operational needs of supermarket chains, convenience stores, restaurants such as space for displaying goods, personnel, payment...
However, when setting up a business location, it is also necessary to take into account some restrictions such as: not signing contracts, issuing invoices, accounting or tax declaration will completely depend on the business.
STEP 3: Applying for the relevant sub-licences
In order to conduct business in reality, enterprises need to apply for a number of Sub-licenses relating to conditional business lines and guarantee other conditions relating to supermarket chain operations such as:
- Food hygiene and safety certification;
- Liquor, Tobacco retail/wholesale license;
- License for fire fighting and prevention
In addition, business locations need to ensure physical facilities can meet the requirements such as: sufficient ground areas, sale equipment; goods supply from other individuals and organizations; warehouses,...
However, there are some notes regarding the conditions for a Liquor/Tobacco Wholesale License as follows:
(1) Conditions for granting a liquor wholesale license
a) Being an enterprise established in accordance with law.
b) Having a liquor wholesale system in the province or centrally-run city, where the enterprise is headquartered with at least 01 liquor retail traders. In case the enterprise has established a branch or business location outside the head office to trade liquor, the certification of the liquor retail trader is not required.
c) There is a written introduction or a contract in principle of the liquor producer, liquor distributor or other liquor wholesaler.
Accordingly, in case the enterprise has a liquor wholesale business but has established a business location outside its head office, then the certification of the liquor retail trader is not required. This means that before applying for a liquor wholesale license, customers need to ensure that they complete the establishment of 01 business location.
(2) Conditions for granting a tobacco wholesale license
a) Being an enterprise established in accordance with law;
b) The business location does not violate the regulations on places where tobacco shall not be sold as prescribed in Clause 2, Article 25 of the Law on Prevention and Control of Tobacco Harms 2012.
c) Having a tobacco product wholesale system in the province where the trader's head office is located (at least 02 traders retailing tobacco products or more);
d) Having a written reference of the supplier of tobacco products or of traders distributing tobacco products, in which clearly states the proposed business area;
Accordingly, for condition (c), the enterprise must ensure that there are at least 02 retailers of tobacco products supplied by the wholesale company. Therefore, before carrying out the procedures for applying for a tobacco wholesale license, the wholesale enterprise needs to have or set up at least 02 retail business locations.
Regarding the detailed application documents and procedures for each type of license, DHT would like to discuss in another article.
4. Conclusion
Based on the scale, demands, and financial capacity, investors can choose for themselves the appropriate type of business. As analyzed above, the business types of supermarket chains, convenience stores, and restaurants should be opened in the form of a business establishment to act as a management company. After that, businesses can open more business locations to build the chain. These options are the optimal solution because they bring convenience in the establishment, management, and expansion of business activities in the long run. Obviously, investors still have the option to set up business households or open branches if it suits their own needs. Through this article, investors can grasp the basic legal information they need to choose the best and most suitable business plan for themselves.
Above is the entire advice of the Dai Ha Thanh Law Firm on basic legal issues related to the business type; we point out the advantages and disadvantages of establishing an individual household business and its dependent units, versus opening a branch or a business location. From there, providing information to organizations/individuals who want to participate in business investment in the form of supermarket chains.
Dai Ha Thanh Law Firm, with a team of professionally trained lawyers, legal advisors at home and abroad, is committed to providing professional legal services to customers. If you need detailed advice, please contact us for professional and effective support.
