Reading time: 4 minutes

Entering a franchised business as a franchisee is a huge commitment and such a decision should be given careful consideration. Not only is it important to conduct your own investigations into the different franchisee opportunities within the various franchise systems, but also to consult a franchise solicitor to assist you during the bargaining stages. A franchise solicitor is trained in dealing with franchisors specifically and can negotiate on your behalf to try and get you a better deal.

To properly investigate a franchise system, you need to have time on your hands and energy to invest. It can be a long and arduous process, particularly without the assistance of a franchise solicitor, but an excellent starting point for unravelling the fine print that details the inner workings of the franchise business is the disclosure document. Generally, the franchisor or its franchise solicitor will prepare the disclosure document.

What to include in the Disclosure Document

  • Franchisor’s Details – As you would expect, franchisees need to be able to get in touch with their franchisor any time (at least during working hours). Contact details, such as the name, number, email, facsimile, etc., along with details of the executives/directors of the franchisor (positions in the company).
  • Franchisor’s Resume – The franchise solicitor will usually include details of the franchisor and the franchisor’s officers, including their experience in the franchise business/industry. Any experience that relates to franchising will also be included as a way of showing the prospective franchisees how qualified the franchisor will be to guide, assist and support the franchisee during the franchise relationship.
  • Financial Reports/Earnings Potential – All franchisees will want to know their earnings potential when entering a franchise agreement. This part of the disclosure document is in some ways the most important, as it gives the franchisee an insight into the financial viability (or lack thereof) of the particular franchise system. In some cases, the disclosure document will not contain any projected earnings as a way of minimising the risk of inadvertently misrepresenting franchisees with respect to the expected minimum earnings/income of the franchise business and the levels of profit they should anticipate. Another option for the franchisor is to have the franchise solicitor draft a separate document that details the projections of the business. To limit any liability for the representations made in these documents, in most cases, the franchise solicitor will require the franchisee to seek independent legal advice and sign an agreement that acknowledges having received this independent advice. In addition, the franchise solicitor may even require an acknowledgement from the franchisee of having received financial advice, which will usually state that the franchisee will not rely on the financial information within the disclosure document. It is worth noting that the financial details of the disclosure document that relate to future potential earnings are usually based on the performance of previous franchisees. The franchise solicitor will usually preface these details with a disclaimer stating that the prospective franchisee may or may not perform to this standard.
  • Materially Relevant Facts – Franchisors are obligated to disclose materially relevant facts to the franchisee that are not outlined in the disclosure document. For example, updated financial documents that become available after disclosure but before signing of the agreement.
  • Other financial information – This is where the franchisor and its solicitor will include financial details of the franchisor, any investors or other key stakeholders. It should also detail any financial hiccups the company or its executives have had, such as receivership and bankruptcy. At the end of the day, transparency is what the franchise relationship will thrive on. There is no point in the franchisees and franchisor keeping important details from each other when essentially they are a partnership in many ways and each is working for the benefit of the other. Just as franchisees will investigate the franchisors, franchisors too will investigate the prospective franchisees, typically with the assistance of a franchise solicitor.
  • Pre Disclosure Information Sheet – As of 1 January 2015, franchisors are also required to provide prospective franchisees with a 2 page information sheet which outlines the risks and rewards of franchising. This should be provided at the interview stage and explains the due diligence enquiries franchisees should make.

Conclusion

Stay tuned for part two of this two part series on how the disclosure document works. For any legal assistance in reviewing or drafting the disclosure document, or any franchise-related advice, contact LegalVision on 1300 544 755 and ask to speak with one our team of experienced franchise solicitors.

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