Going International: How to Franchise Overseas

Many franchisors come to LegalVision as they’re just about to kick off the process of starting a franchise. A majority of franchisors have done the hard yards and drafted their operations manual and even tested out their business idea in the market. It’s helpful when the franchise model has already been running as a business so that the franchisor can show potential franchisees how the business works in practice. Lately many of our franchisors have been coming to us with franchisees who are ready to come on board. Some have even gained interest from potential franchisees overseas. Before you head down the route of franchising abroad, here are some pointers to keep in mind before you get started.

Keep Confidentiality Top of Mind

When corresponding with potential franchisees overseas, confidentiality should be a key consideration. Although you will need to disclose certain aspects of your business model, keeping the core operational structures and systems confidential will help protect you from the other party simply operating the business without your consent or knowledge.

If you are at a stage where the other party is willing to sign an agreement or provide a deposit, you may want to draft legal documents to ensure your negotiations will lead to establishing your franchise overseas. These documents include:

• Term Sheet: A term sheet will help underline the terms of your negotiation so far and will provide you with documentation that both parties are genuinely interested in setting up the business.
• Confidentiality Agreement: The confidentiality agreement or non-disclosure agreement works to protect any of the discussions you have had with the other party, including the confidential nature of the franchise documents you have provided to them.

There will always be a level of commercial prudence that you will need to take when speaking with parties overseas. Get to know your potential franchisee and see if they could represent your franchise well in the country they propose to set up.

How do I Start my Franchise Overseas?

There are several considerations to keep in mind when starting your franchise overseas as it is not the same process as setting up in Australia. The main thing you need to keep in mind is that like all laws, franchise laws differ throughout the world. The primary legal document you would need to set up overseas is a licence agreement. The licence agreement operates similarly to a franchise agreement in that it allows the overseas party to, among other things:

• Use your intellectual property and trade marks;
• Operate in a similar manner through access to your operation manuals; and
• Include services and training to licensees to ensure the quality of your brand is maintained, etc.

The potential licensee also needs to be aware that the licence agreement will originate from an Australian business, and so the document will most likely be drafted according to Australian laws. This will benefit you as the franchisor as it allows you to seek recourse in Australian courts.

Do I Need a Master Franchisor?

Some franchisors operate overseas through a master franchisor. If you are a franchisor that has identified potential for growth and would like to rapidly expand overseas, selecting a master franchisor in the country you would like to operate may be a good option. In practical terms, you would provide the master franchisor with a licence agreement that has detailed provisions about their ability to sublicense within their country of operation. These sublicensing provisions will equip them to search for franchisees within the country and will assist them to set up. The master franchisor will then need legal documents to provide to sublicensees. Consequently, they will need to find a local lawyer that can draft franchise agreements in their country. This will be the legal agreement they provide to franchisees within their country.

The master franchisor will technically be acting as your representative in that country and will have a lot of power to make decisions. It goes without saying that you should find a master franchisor that you trust to represent your business. As a matter of practicality, many businesses that want to expand overseas set up a business entity in the relevant country and subsequently become the master franchisors themselves.

Key Takeaways 

Of course, it is not necessary for a master franchisor to exist for you to expand overseas. You can provide franchisees with a licence to enable your business to enter new markets overseas. Importantly, if you have any questions about how to set up your franchise abroad, or are indeed ready to take the next steps, ask. You can get in touch with our franchise team on 1300 544 755.