Many international brands are interested in entering the Australian market as a franchise model. However, our regulatory regime means establishing a franchise in Australia significantly differs from other local markets. We run through an international franchisor’s obligations for setting up a franchise in Australia in light of the Franchising Code of Conduct (the Code).
How Can a Brand Enter the Australian Market?
It’s important to first understand how an international franchisor can enter the Australian market. More commonly, a brand finds a reliable and trustworthy “subfranchisor” who acts as the franchisor within the Australian market. That means they have the authority to grant franchises to “sub-franchisees” and they have the responsibility to expand, administer and regulate the franchise network. The choice of “subfranchisor” is important as international franchisors place considerable responsibility on this entity.
International franchisors can also set up an entity in Australia, noting there may be resident requirements for company directors. In this scenario, the franchisor can maintain a significant level of control in the operation of the franchise.
Of course, international franchisors may wish to run the franchise from overseas. There can be some practical limitations to this when it comes to administering and regulating the franchise network from afar. Nevertheless, this option does not relieve the international franchisor from their compliance requirements with the Code. That is, the international franchisor will still need to comply with Australian laws when operating their franchise.
What About Licensing?
Some international franchisors may choose to provide a “licence agreement” to a business in Australia to allow them to run a business based on the international franchisor’s intellectual property. Here, international franchisors must be careful – although an agreement may be called a “licence agreement”, the agreement may have all the elements of a franchise agreement as defined by the Code. If this is the case, the Code will bind the international franchisor.
Obligations of International Franchisors
Under the Code, an international franchisor must provide a disclosure document in its prescribed format. If the international franchisor chooses to operate through a subfranchisor, the law will only require them to provide a disclosure document to the subfranchisor and not the individual sub-franchisees.
An international franchisor must also comply with procedural aspects including:
- Providing a seven day cooling off period; and
- Providing a 14 day period for the subfranchisor or franchisee to consider the franchise purchase.
Important Legal Considerations
The international franchise must comply with both the Code and other Australian laws that could potentially impact the operation of the franchise business, including:
- Occupational health and safety; and
Franchises do not operate in a vacuum and need to be fully compliant with the laws of the country that they operate.
Embarking on the expansion of international business to new shores can be a lucrative, yet complex, initiative. Due to Australia’s system for regulating franchises, it is important to obtain professional legal advice regarding the Code of Conduct and the potential obligations that need to be met.
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