1Franchising is a popular option for businesses looking to expand and for entrepreneurs looking to run their own business within a supportive structure. Over the last 5 years franchising has gained in popularity, but it’s important that both franchisors and franchisees understand the legal issues involved in the franchising process.
2The Franchising Code of Conduct governs franchising in Australia. It’s vital that any prospective franchisor ensures every element of their franchise is compliant with the Code.
3The most important document governing a franchise relationship is the franchise agreement. A franchise agreement sets out the legal relationship between the franchisor and franchisee, includes the franchise history, and details how the franchise will work. This includes upfront and ongoing payments by the franchisee, and what the franchisee receives for those payments.
4A franchise disclosure document must be provided to each prospective franchisee. A disclosure document is designed to give a franchisee an overview of the franchise agreement terms he or she is agreeing to. Every franchisee should have the franchise agreement and the disclosure document reviewed.
5Franchises generally involve considerable up-front and ongoing payments, and have a minimum term of several years. Setting up a franchise, or entering into a franchise as a franchisee, is a considerable commitment. It is important that both sides of the franchise are well-advised by lawyers and accountants who have expertise with franchises. Specialist advisers know what to look for and can advise you on what is standard and acceptable.