Reading time: 4 minutes

The Franchising Code of Conduct sets out the rules that govern Marketing Funds. As Franchise Lawyers, we know that whether you already have a Marketing Fund or simply want to set one up, you will need to follow the rules regarding:

  • Disclosure;
  • Reporting; and
  • Restrictions on spending.

Remember, it doesn’t matter what you actually call your Marketing Fund, (e.g. advertising fund, promotional fund), so long as it serve a similar purpose, it will be considered a Marketing Fund. Similarly, it doesn’t matter what you call the marketing contrition, so long as the money goes into the fund, then it will be regulated by these rules. Our Franchise Lawyers have come across franchisors who call the marketing contribution by some other name, hoping to get around the disclosure and reporting obligations.

Disclosure

Before you can set up a Marketing Fund, or require any franchisee to contribute to the Marketing Fund, you need to disclose:

  1. how much the franchisee needs to contribute to the marketing fund (items 14.6 and 15.1(b) of the Disclosure Document);
  2. who contributes to the fund (item 15(1)(a) of the Disclosure Document);
  3. whether franchisees contribute at different rates (item 15(1)(b) of the Disclosure Document);
  4. whether the fund is audited and if so by whom (item 15(1)(d) of the Disclosure Document);
  5. how the funds finical statements can be inspected (item 15(1)(e) of the Disclosure Document);
  6. what kind of expenses the fund may be used for (item 15(1)(f) of the Disclosure Document);
  7. the funds expenses for the last financial year (item 15(1)(g) of the Disclosure Document);
  8. whether you have any associates that supply goods or services to the fund (item 15(1)(h) of the Disclosure Document); and
  9. whether the fund will be used to promote a specific franchisee (item 15(1)(o) of the Disclosure Document).

Reporting

Another obligation in regards to operating a Marketing Fund is the requirement of keeping records. You must ensure to record all:

  1. payments made into the fund; and
  2. all expenditures made by the fund.

This is because, as our Franchising Lawyers can tell you, you are required, within 4 months of the end of each financial year, to have a detailed statement setting out these payments and expenditures audited by a “registered auditor” and to give them to your franchisees (clause 15.(1) of the Franchising Code of Conduct). The statement needs to be given to your franchisees within 30 days of it being prepared, and the auditor’s report also needs to be given to your franchisees within 30 days of it being prepared (clause 15.(1)(d) of the Franchising Code of Conduct).

There is, however, an exception to the requirement for the statement to be audited. This happens if 75% or more of your franchisees vote and agree to not require the statement to be audited. This is because in some cases, the cost of the audit can be a significant portion of the fund, and is therefore not worthwhile. This does not mean franchisors can take a lax approach to reporting. Not only could this potentially be a breach of the Good Faith obligation, a franchisor who does not keep proper records can be hit with a $51,000 fine by the regulator (the ACCC).

Restrictions on spending

Money that is collected into the marketing fund can only be spent on:

  1. legitimate marketing or advertising expenses;
  2. expenses relating to the administering and auditing of the marketing fund;
  3. expenses that have been disclosed to franchisees under item 15.1(f) of the Disclosure Document (see above); and
  4. expenses that have been agreed upon by the majority (i.e. 50%) of franchisees (clause 31(3) of the Franchising Code of Conduct).

You are also not allowed to require franchisees to pay for an additional fee to cover any administration or auditing expense in relation to the marketing fund (clause 15(3) of the Franchising Code of Conduct).

Conclusion

Marketing Funds for franchises are heavily regulated by the Franchising Code of Conduct. If you are a Franchisor and want advice on how to set up or to see whether you are currently complying with your obligations, then contact us and one of our Franchising Lawyers will be able to help.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards