Reading time: 3 minutes

The obligations on franchisors are certainly onerous. In addition to the growth and continual improvement of the franchise network, franchisors are burdened with a number of statutory and contractual obligations (usually found in the franchise agreement itself) including:

  • Ongoing disclosure;
  • Receipt and analysis of reports;
  • Provision of training; and
  • Undertaking appropriate audits, renewals and, in some cases, terminations.

It can then be tempting for many business owners to attempt to sidestep such obligations by adopting a licence model, rather than a franchise.

Indeed, LegalVision’s lawyers field numerous enquiries regarding the consequences of operating under a licence agreement while still obtaining the level of control that is the cornerstone of the franchise relationship. Our advice? Don’t do it. Below, we explain the possible ramifications for business owners operating a franchise disguised as a licence agreement.

Franchise vs License

In essence, a licence is a right to use. On the other hand, a franchise agreement is a system requiring the presence of the following four criteria:

  1. An agreement that is, in part, written, oral or implied;
  2. A party grants a right to operate a business offering, supplying or distributing goods or services in Australia under a system or marketing plan that the offering party substantially determines or controls;
  3. Is premised on the use of a trade mark or symbol (brand) the offering party owns; and
  4. The receiving party makes particular payments to the offering party.

If these criteria are satisfied, and this will be dependent on the individual case, the system is a franchise and the Code applies.

Potential Liability for Failing to Abide by the Code

If you run a franchise, you have obligations under the Franchising Code of Conduct that include disclosure and provision of certain information to current or prospective franchisees before forming a binding contract.

Many successful legal cases have been run because a party was, in fact, operating a franchise and had failed to provide appropriate disclosure under the Code in circumstances where they purported to grant a licence. Had the operating party disclosed the necessary information, the franchisee/licencee would not have entered into the agreement at all. Consequently, an award of damages exceeding hundreds or thousands of dollars is awarded against the operating party.

Potential Liability to ACCC

Further, the Australian Competition and Consumer Commission (ACCC), the body who governs the operation of the Code in Australia, can and does impose sanctions for parties found to be in breach of the Code. We’re not talking a slap on the wrist here. Financial penalties and infringement notices are available under 24 penalty provisions of the Code, with maximum fines at $54,000 per breach, including for a failure to:

  • Act in good faith;
  • Provide a disclosure document (or provide inadequate disclosure);
  • Attend mediation (as is required under the code); or
  • Provide reasonable written notice of proposed termination for breach.


We hope all of those dollar signs are enough to make you think twice about operating a franchise disguised as a licence. While the obligations of franchisors can be indeed onerous, the Franchising Code of Conduct exists for a reason, and failure to comply, regardless of what you call your operative document, can lead to very serious consequences.

If you are looking to expand your business and are not sure what model is right for you, get in touch with LegalVision’ franchise lawyers on 1300 544 755.


How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer