Skip to content

Part Two: How Does the Disclosure Document Work?

In Short

  • Franchisors must include specific legal and financial details in their disclosure document.
  • Key components include franchisee obligations, upfront costs, and ongoing fees.
  • Failing to provide accurate information can lead to legal disputes and penalties.

Tips for Businesses
Ensure your disclosure document clearly outlines all fees, costs, and legal obligations. Regularly review and update the document to remain compliant with the Franchising Code of Conduct. Accurate disclosure helps protect your business from potential disputes with franchisees and fosters a transparent relationship.


Table of Contents

Welcome to Part Two on how the disclosure document works. As you know, the disclosure document details key information about a franchisor and the franchise system that you need to know before deciding to enter into a franchise agreement. The franchisor must provide this information to you in line with their obligations under the Franchising Code of Conduct. If you are unsure if you are receiving all the information you are entitled to in the disclosure document, this article will discuss the key details to look out for in a disclosure document.

Front page of publication
Franchisor Handbook

The ultimate guide to setting up a franchise.

Download Now

Intellectual Property

The intellectual property (IP) of a franchise is one of its most valuable assets. IP includes the:

  • branding and trademarks of the franchise network;
  • systems;
  • processes;
  • recipes;
  • trade secrets; and
  • more.

The disclosure document must clearly state what IP the franchisor owns and what rights the franchisor is providing to the franchisee to use such IP.

If a separate entity in the franchisor’s corporate structure owns the IP, you need to clarify how this entity has granted rights to the franchisor to license the IP to the franchisee. You must disclose this information in the disclosure document.

Territory

To protect other franchisees in the same network and prevent competition among them, the franchisor may assign specific territories for each franchisee to operate in. The disclosure document should clearly state any geographical exclusions, meaning territories where each franchisee exclusively operates, and provide a summary of the day-to-day operations. However, some franchises do not offer exclusive territories and may allow the franchisor to start other competing businesses in the same territory.

Although the disclosure document is highly detailed, it is not tailored to one franchisee. Therefore, you must review the disclosure document alongside the franchise agreement. The franchise agreement should include the “deal specific” terms applicable to you.

Continue reading this article below the form
Loading form

Operations Manual

Every business has its own way of operating, and each franchisee must follow the operations manual to ensure that the franchising network operates consistently. For franchises that provide a service, like a car rental service, the manuals should clearly explain how to deliver those services to clients. For goods-based franchises, the document should explain how to supply, deliver, and purchase the goods and if any rebates apply to both the franchisor and franchisee. Rebates provide the franchisor with another source of income based on the sales and performance of the franchisee. You must disclose rebates.

Renewal, Term and Assignment

The disclosure document should include details about the agreement terms and any renewal options. It is important to have your franchise solicitor review these clauses to ensure they are fair and reasonable. Additionally, provide information about the assignment process if the franchisee decides to sell their franchised business to another prospective franchisee. Simply finding a buyer and selling the business is required. The franchisor has requirements for potential franchisees, such as necessary finance and experience. These requirements should be reflected in the disclosure document.

Moreover, the disclosure document must specify how either party can end the term early. This includes the franchisee’s cooling-off rights, the parties’ rights to terminate for breach, and any other early termination rights.

Initial and Ongoing Fees

You will face several fees at every stage of the franchise relationship. These include a start-up fee, known as an:

  • initial fee;
  • training requirements;
  • marketing fund contributions;
  • other promotional activities;
  • royalties; and
  • costs to fit out the site.

Failure to make payments on time may delay the opening of your franchise or, in more serious cases, lead to the termination of your franchise agreement. Therefore, you must understand what the fees are, when they are payable, and what you will receive. It is also recommended that you consult a financial adviser to determine the financial viability of the franchise you are looking to open.

Key Takeaways

The disclosure document provides valuable information for prospective franchisees. It stands apart from the franchise agreement itself. To ensure your understanding of the franchising business, you should make further inquiries. For example, you can visit existing franchising businesses to get a feel for the system and how it operates.

If you require assistance with your disclosure document, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a disclosure document?

A disclosure document is a legal requirement for franchisors to provide prospective franchisees with essential information about the franchise system, including financial and legal details, before entering into an agreement.

What should be included in the disclosure document?

Key components include franchisee obligations, upfront costs, ongoing fees, intellectual property rights, territories, operational guidelines, and terms for renewal or termination.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
Ramsha Naz

Ramsha Naz

Lawyer | View profile

Ramsha is a Lawyer at LegalVision within the Franchising and Leasing team. She graduated from the University of New South Wales with a Juris Doctor.  Ramsha has previous extensive experience working in Property Law and assisting with Corporate and Commercial Law matters.

Qualifications: Juris Doctor, Graduate Diploma of Legal Practice, University of New South Wales.

Read all articles by Ramsha

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards