5 things you
need to know
about
Buying a Franchise
- Over the past several years, franchising has been an increasingly popular option for businesses looking to expand and for entrepreneurs looking to run their own business within a supportive structure. However, it is essential that both franchisors and franchisees understand the legal issues involved in the franchising process.
- The Franchising Code of Conduct governs the rules and regulations of the Australian franchising industry. Prospective franchisors must ensure that every element of their franchise is compliant with the Code.
- The most important document governing a franchise relationship is the Franchise Agreement. A Franchise Agreement sets out the legal relationship between the franchisor and franchisee, including details of how the franchise will work and both the franchisor and franchisee’s obligations. This includes upfront and ongoing payments by the franchisee and what the franchisee receives from the franchisor for those payments.
- A Disclosure Document must be provided to each prospective franchisee. It is designed to give a franchisee an overview of the franchise network that the franchisee is potentially entering into. Every franchisee should have the Franchise Agreement and the Disclosure Document reviewed to ensure the terms align with the Code.
- Franchises 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.
