If you are a franchisor from overseas looking to enter the Australian market, you must consider several legal and commercial aspects. Australia has strict franchising laws, and there are severe ramifications for non-compliance with the Franchising Code of Conduct. This article highlights various key factors to consider if you aim to expand your franchise into Australia.
Registration in Australia
Typically, franchisors set up a new franchise business in Australia by registering a franchising entity. This entity will usually be a limited liability company that you must register with ASIC. It is essential that your franchising entity complies with all the requirements under the Corporations Act 2001.
Alternatively, you may elect to register as a foreign entity. This option is less common due to the advantages of limited liability. You must meet specific criteria to register a new entity, such as having an Australian director and a registered office. From a legal standpoint, a head (or master) franchise agreement or a similar document is necessary. This agreement grants the Australian operative entity the authority to operate as the franchisor for your business in the Australian market.
Your franchisor entity in Australia, acting as the ‘master franchisee,’ will take on the role of a typical franchisor. This involves granting franchises to franchisees and ensuring they adhere to the obligations outlined in the Franchising Code of Conduct.
Preparation of Franchising Documents
Before granting franchises to franchisees in Australia, it is paramount that you prepare the correct documents. To comply with the Franchising Code of Conduct, you will need three key documents, which are:
- the franchise agreement;
- the disclosure document; and
- a key facts sheet.
The franchise agreement is a contract between you, the franchisor and the individual franchisees, outlining their relationship and procedures for ending the agreement. It must comply with the Franchising Code of Conduct, which specifies necessary components for the agreement.
The disclosure document is essential and should be accurately drafted and updated annually to meet obligations under the Franchising Code of Conduct. It is part of the disclosure suite of documents you must issue to your franchisee for their consideration and review upon joining your network. Further, the key facts sheet is a summary of the disclosure document, providing a concise overview.
Continue reading this article below the formIntellectual Property Issues
The use of existing intellectual property is central to franchising. Brands are recognisable through their branding, logos and other trademarked aspects. Therefore, it is essential that you protect how franchisees can use any of your intellectual property.
Commonly, the agreement between the overseas entity and the Australian franchisor will contain a licence to exploit the intellectual property of the franchise brand. It is highly advisable that your intellectual property is protected in Australia. You can ensure this by way of trademark registration and preservation of copyright. As such, all your registrations regarding this must be up to date. Additionally, carefully draft the franchise agreement to ensure proper protection of your intellectual property.
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Franchise vs License
A foreign franchise can enter the Australian market by issuing a licence or a series of licences. Under Australian law, if a licence has all the elements of a franchise relationship, it will be treated as a franchise. This includes imposing strict disclosure and other obligations under the Franchising Code of Conduct. Therefore, it is essential to consult with your franchise lawyer to ensure you are adopting the correct model.
Key Takeaways
Successfully entering the Australian market involves a comprehensive grasp of legal and commercial obligations, as well as strategic factors. Therefore, you must carefully understand the following to ensure the sustained success of your franchise network in Australia:
- registering a new entity;
- carefully crafting franchising documents;
- safeguarding intellectual property; and
- discerning the differences between franchises and licenses.
If you need help expanding your goods and services as a franchisor, our experienced franchise lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
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