The Franchising Code of Conduct (‘the Code‘) regulates franchise relationships in Australia. Generally, franchisees are the more vulnerable party to the franchise agreement. Therefore, the Code tends to be more demanding for franchisors. For instance, as a franchisor, you must fulfil strict record-keeping requirements, so your franchisees remain informed about the franchise system.
This article will outline your record-keeping obligations as a franchisor per the Code.
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Record-Keeping To Produce Documents
Under the Code, it is a requirement for franchisors to produce and provide franchisees with specific documents. However, drafting these documents without adequate record-keeping systems will be challenging. For instance, the Code sometimes provides the approved form for some of the documents.
Additionally, you must provide certain documents to prospective franchisees at least 14 days before signing the agreement. This ensures that the franchisee has all the available information to decide whether they should enter the franchise system correctly. As such, the documents include a:
- disclosure document;
- key facts sheet;
- an outline of the Code;
- information statement;
- franchise agreement; and
- lease documents (if applicable).
Supporting Documents
In addition, if a franchisee or prospective franchisee gives you a document that the Code requires them to provide, you must keep it or a copy. This includes any documents which they provide electronically. For example, you must keep:
- confirmation of the franchisee’s receipt of the disclosure document;
- the franchisee’s professional advice statement;
- any marketing fund audit votes;
- a request to transfer a franchise to a third party if applicable;
- a request for a new disclosure document at least once a year;
- a notice of dispute; and
- a request to not disclose a former franchisee’s personal details.
Record-Keeping to Help Fulfil Your Disclosure Requirements
Under the Code, all franchisors have four months from the end of each financial year to review, update and issue their disclosure documents to their franchisees. A failure to do so can attract severe financial penalties.
To fulfil your disclosure requirements under the Code, you should keep a record of the documents that relate to:
- the franchise’s solvency, reflecting the position of the business at the end of the last financial year or at the date of the statement; and
- financial reports for each of the last two completed financial years.
You should note that a franchisee can make one request every 12 months to receive an up-to-date disclosure document. If you receive such a request, you must provide the franchisee with the disclosure document updated for the relevant financial year within 14 days of receipt of the request.
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Record-Keeping For Marketing Funds
If you operate a marketing fund, you should also keep a clear record of expenses over the year to assist with preparing your financial statement for the following year. A marketing fund is an account you control and use to fund marketing campaigns and associated expenses to promote the franchise network. Since marketing funds usually depend on financial contributions from the franchise network, franchisees must know how to use their contributions for promotional or marketing activities.
The financial statement for your marketing fund should include:
- meaningful information about the expenses incurred for marketing and advertising; and
- receipts for the marketing fund.
You must also audit the financial statement for the marketing fund unless at least 75% of franchisees vote against conducting the audit. Therefore, you can facilitate a positive audit by keeping clear and up-to-date records.
Key Takeaways
As a franchisor in Australia, you must fulfil the strict record-keeping requirements that the Code outlines. This means you must produce and provide your franchisees with:
- an outline of the Code;
- a disclosure document; and
- franchise agreement.
Without adequate record-keeping systems in place, it will not be easy to produce these documents. In addition, keeping up-to-date records is essential for fulfilling your disclosure requirements and obligations concerning marketing funds under the Code.
If you have questions about the Franchising Code of Conduct, our experienced franchising 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.
Frequently Asked Questions
A disclosure document is a standard document prescribed by the Franchising Code of Conduct. A disclosure document provides prospective and current franchisees with crucial information about the franchise system.
As a franchisor, you must update the disclosure document every year. You must do so four months from the end of each financial year or by 31 October.
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