As a $146 billion industry, the Australian franchising sector has exciting opportunities. It offers a space for companies looking to expand their offering to a new market. In this article, you will find some practical tips for expanding your international franchise to Australia. Additionally, this article outlines the key regulatory issues to consider if you are planning to move your international franchise Down Under.
1. Consider Finding a Master Franchisee
One way of bringing a franchise to Australia is to find a local entity. This entity will act as your master franchisee. You would grant a master franchisee the right to issue franchises within a particular area. The master franchisee would effectively step into the shoes of a franchisor.
The master franchisee would be responsible for recruiting and training new franchisees and overseeing the Australian franchise network. The written contract used to appoint a master franchisee typically includes specific terms. For example, you would keep the right to approve certain important issues, such as marketing strategies.
You might also place the legal responsibility for complying with Australian franchising law on the master franchisee. Master franchisees must regularly report back to the head company regularly. In this way, you are able to maintain control and oversight of your brand. However, you can still pass day-to-day responsibilities to a trusted entity.
You can charge the master franchisee an initial upfront fee to purchase the franchising rights in Australia, as well as ongoing fees. This might include a:
- percentage of fees received from Australian franchisees; and
- royalty for use of your systems and intellectual property.
2. Run the Franchise Yourself
There are two ways that you can keep your role as the franchisor:
- firstly, you can set up a new Australian company to run the local operation; or
- alternatively, you can enter into franchises under your existing company.
If you are establishing an Australian company, you should consider rules around who can be a director. For example, a private company must have at least one director who ordinarily lives in Australia. For public companies, this requirement covers at least two directors.
In the alternative, you may consider using a foreign company to enter into franchise contracts. In this case, you will need to register as a foreign company under the Corporations Act. This is the Australian domestic law governing companies.
3. Prepare Your Franchise Agreement
You will need to put together a template franchise agreement to issue to all prospective franchisees. Your franchise agreement will need to comply with the Franchising Code of Conduct (the Code). It is essential that your franchise agreement is not inconsistent with the Code – if it is, the inconsistent parts of your document will be invalid. For example, you cannot require a dispute to be heard in a state or territory outside of the state or territory in which the franchisee is operating.
Mediation under the Code must also be in Australia, which means you cannot force franchisees to attend a compulsory arbitration in the country in which your company is based. There are also other parts of the Code that you can typically find in a franchise agreement, such as a 7-day cooling off period for people who have just purchased a franchised business.
4. Create a Disclosure Document
Aside from your franchise agreement, franchisors operating in Australia also need to have a disclosure document. Franchisors must update this yearly. It provides an overview of:
- your business;
- the history of the franchise; and
- the key points of how the franchise will operate.
However, it is not the legally binding contract between you and the franchisees. This means that you can have one document for all of your franchisees, rather than amending the document for each individual business.
Although it is not the legally binding contract, it must still be accurate and should reflect the terms of the franchise agreement. You must give the document to franchisees at least two weeks before they sign any legally binding documents.
Requirements Under The Code
The Code lists several items which must be addressed in a disclosure document. Some of these items include:
- who owns the intellectual property (IP) in the business;
- who are your business associates (individuals or other companies related to the franchisor entity);
- what is your business experience;
- any litigation relating to the franchise (including directors of related companies);
- financial information on the franchisor;
- whether franchisees can sell or promote your goods and services online; and
- estimated upfront and ongoing expenses for franchisees.
Master Franchise Agreement
If you are appointing a master franchisee to be in charge of the Australian franchise network, you will not be required to prepare a separate disclosure document for the sub-franchisees that your master franchisee recruits.
Your disclosure document would be issued to your master franchisee. Then, your master franchisee would be responsible for providing the document to sub-franchisees.
However, it is a good idea to have a clause in your master franchise agreement requiring your pre-approval for the franchise agreement and disclosure document which will be issued to sub-franchisees, so that you can ensure that the:
- master franchisee is following Australian laws; and
- terms of the contracts are suitable to you.
5. Register Your Trade Marks
If you want to have the exclusive right to use your trade marks in Australia and be able to more easily protect yourself against unauthorised use of your IP, your trademarks should be registered before you start issuing franchises.
Registration is a valuable way of protecting your brand and the goodwill associated with your business. As part of their due diligence before purchasing a business, many franchisees will look at:
- firstly, the IP within the international franchise system; and
- secondly, whether it is registered.
6. Get Legal Advice
Like any market, there are laws that are specific to Australia which international franchisors should be aware of. Here, you should obtain advice on local rules around:
- consumer laws;
- employment, particularly in light of fair work laws;
- data collection; and
Additionally, there are specific regulations that apply to certain industries. While these issues may not necessarily have to be incorporated into your legal documents, having a general understanding of your responsibilities under these different laws will help guide your operation of the franchise network.
Moving into the Australian franchise sector may provide the potential for your franchise’s growth. When making this move, there are some key legal and commercial considerations to make, including:
- considering master franchisees;
- deciding who will operate the franchise in Australia;
- preparing your franchise agreement and disclosure document;
- complying with the Code;
- protecting your IP; and
- getting appropriate legal and tax advice.
If you have any questions, call LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
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