If you’re a franchisor, and you have not yet commenced updating your franchise disclosure documents, it’s time to act! Under the Franchising Code of Conduct (the Code), once franchisors have entered into a franchise agreement, the Code requires them to update their disclosure documents within four months after the end of each financial year. That is, you will need to update your franchise disclosure documents by the end of October. This article will explain what aspects of franchise disclosure documents require updating.
When Don’t Franchise Disclosure Documents Require Updating?
The franchisor must first meet two conditions to be exempt from updating their disclosure documents:
- Franchisors are not required to update their disclosure document if they did not enter into more than one franchise agreement during the last financial year (including transferring, renewing or extending a franchise agreement); and
- The franchisor must not intend to enter into another agreement in the following financial year.
Some common provisions that require updates are set out below.
1. Company Structure/List of Associates
Have you added another entity to the group or undertaken a restructure? Have any directors resigned or joined the group? These sorts of operational changes mean the content in the disclosure document will need to be updated to reflect the status of the franchisor entity.
2. Intellectual Property
Annual disclosure updates provide a great prompt to check the status of all intellectual property registrations. You will need to include any changes to the status of your intellectual property, including any additions, in the disclosure documents.
3. Online Sales
With a lot of franchisor entities embracing e-commerce and technology, you should consider whether the online sales platforms and distributions channels have changed in the last year. You should ensure the franchise agreement accurately reflects this status.
4. List of Franchisees
The disclosure document requires you to provide an itemisation of franchisees and franchised business per state. Also, any transfers, assignments, non-renewals or terminations must be noted. As a general rule, it is a good idea to note the basis of any such transfers as it will alleviate any concerns that could arise. You will also need to update the relevant contact details.
5. Expenses
Item 14 of the disclosure document should contain a detailed itemisation of the set-up costs and operating costs of the franchise business. It is worth examining the list annually to ensure its accuracy. Some points you should consider include:
- Increases in award/minimum wages, which could result in increased staffing costs;
- Any planned or proposed rebranding; and
- Any associated costs passed on to franchisees.
In general, costs should be increased proportionately to general market increases.
6. Annexures
Franchisors have specific disclosure requirements when it comes to their finances. You will either need to annexe financial statements for the last two financial years or a report from a registered auditor as to the franchisor entities’ solvency. Either way, both options take planning and should be commenced well before the end of October.
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These are some standard provisions that require updating. Of course, you should review the entire disclosure document to ensure its ongoing accuracy. If you need any assistance, a franchise lawyer will be able to update the document for you and review your proposed updates to ensure ongoing compliance with the Code. Get in touch with your questions on 1300 544 755.