Franchising

When businesses work together

Franchising

Franchising can be an exciting new part of your business journey, but this business of businesses can create unique and complex legal issues that require expert advice encompassing several areas of law. 

Aditum Lawyers have the knowledge, expertise and experience to assist you with a wide range of franchising matters. Whether you want to join a franchise or create one around an existing business, our highly experienced Sydney commercial lawyers can assist you with your franchising needs. 

What is Franchising?

Franchising is a business model whereby an owner provides a license to use its operational knowledge, intellectual property, products and combined resources in exchange for a franchise fee.  This model can be mutually attractive as it allows a business to grow its brand and presence and offers new business owners a turn-key business under a proven model. Some well known franchise businesses operating in Australia include Laser Clinics Australia, Subway, McDonalds, Century 21 and F45.

The franchise relationship is generally governed by the Franchising Code of Conduct and the Franchise Agreement. It is likely that you will require legal advice to assist you in navigating these complex documents and understanding the implications they will have on your business interests. Aditum Lawyers is ready to assist you with all aspects of franchising and we recommend getting in touch as early as possible in the process so that we can assist with negotiations, drafting, review and advice at all stages.

How Aditum Lawyers can help you

Aditum Lawyers can help you with a wide range of franchising matters, such as:

  • Franchise agreements and disclosure documents, which need to be considered together with the implications of the Franchising Code of Conduct. If a franchise agreement fails to comply with the Franchising Code, it can be held invalid and attract risk of penalties for non-compliance.
  • Advice relating to compliance with the Franchising Code of Conduct, which has far reaching implications for both franchisees and franchisors which include their conduct before the agreement is entered into and after..
  • Supply agreementsare often used in conjunction with Franchise Agreements in order to maintain consistency across the business and ensure minimum standards are met.  A franchisor may require that the franchisee purchase from an approved supplier and can use the collective bargaining power of the group to negotiate better pricing, supply terms and rebates. Supply agreements must be carefully constructed to avoid any anti-competitive practices such as third-line forcing. Australian Competition and Consumer issues can arise if these agreements are not carefully considered.
  • Business structures will play an important role in the way you manage your business operations and relationships. Whether you are starting or joining a franchise, there are a number of factors that need to be considered when deciding on which business structure is right for you. Factors to be considered when determining which structure to use include liability and asset protection, control, tax implications and how you intend to grow the business. We may recommend more complex company structures involving holding companies or even incorporate the use of trusts.
  • Intellectual property(‘IP’) of the franchise business is usually retained by the franchisor and licensed to the franchisee through a licensing agreement. As the business grows and more franchises join, the value of the IP increases and so having adequate protection is integral to maintaining the good will associated with business.

 

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How do I get started?

Aditum Lawyers are dedicated to helping you in the way you need it. We don’t just take the time to understand you legal matter, but your entire business model and how best to work with you. Our highly experienced Sydney franchise lawyers are ready to help you with your legal matter. Contact us today to discuss your legal needs on (02) 8593 8326 or submit an online enquiry to get started.

Franchising FAQs

Franchisors must provide the following documents at least 14 days before any agreement is entered into or a non-refundable payment is taken:

– Information Statement

– Disclosure Document

– Franchise Agreement

– A copy of the Franchise Code of Conduct

If the franchisee is required to enter into any other agreements (e.g. leases, supply agreements, confidentiality agreements) then these must also be provided 14 days prior to the agreement being signed.

We recommend getting in touch with our Sydney franchise lawyers as early in the process as possible to ensure that everything is done in accordance with the requirements. 

Yes, disclosure documents need to be updated at the start of each financial year to reflect any changes that may have occurred. Generally these updates must be made within 4 months of the financial year ending.

The updates need to be accurate and current and should not contain any information that is false or misleading, nor should it omit any important information regarding the franchise.

Where new financial information (e.g. financial reports, auditor’s reports or solvency statements) becomes available, this must be provided as soon as practicable. If a new franchise agreement is about to be signed, the updated disclosure document and financial information must be given to the party before signing.

There are some situations where you may not be required to update your disclosure document but you should seek legal advice from one of our Sydney franchise lawyers on this issue.

If the franchisor requires payment into a marketing or other cooperative fund then an annual fund statement must be prepared. The statement must make sense to an ordinary reader and include enough detail to give the franchisees meaningful information about the fund’s income and expenses. This allows franchisees to understand how, when and on what the funds are being spent. 

Franchisors are required to keep any document that the Franchising Code requires, or permits a franchisee to provide such as:

– requests for disclosure documents;

– notices of disputes;

– professional advice statements;

– confirmation of receipt of disclosure document;

– requests to transfer a franchise; and

– requests not to disclose former franchisee details.

Franchisor’s must also retain any documents that are used in support of any claims or statements made in the disclosure document.

These documents must be retained for 6 years from the date of creation and can be requested by the ACCC.

 

Franchisors often require franchisees to purchase goods and services through a list of nominated suppliers and it is common for these suppliers to be a related entity of the franchisor. This is known as exclusive dealing, which occurs when one entity imposes restrictions on the other’s freedom to choose who they deal with. 

Exclusive dealing with regards to supplier agreements are allowed where the conduct would not have the purpose or effect of substantially lessening competition. 

If you have concerns with regards to a supplier agreement for your franchise then reach out to Aditum Lawyers, who can provide you with further clarification and advice.

If you are considering becoming a franchisee then you should make sure you have followed these steps:

– Seek legal advice as early in the process as possible;

– Read all documentation carefully;

– Speak to current and former franchisees about their experience;

– Take time to consider all the information and seek professional accounting advice.

You can terminate the new franchise agreement within 7 days of entering into or making a payment under the agreement (whichever occurs first).

If you exercise this right, you will be entitled to a refund of the payments you have made. This refund must be provided within 14 days, however, an amount may be retained to cover reasonable expenses where the franchise agreement provides for this.

The Franchising Code sets out a dispute resolution framework and Franchisors must also develop an internal procedure to handle complaints. There is an obligation that both parties act in good faith.

Steps for handling a dispute

1. Written details of the problem, the outcome sought and how the outcome can be achieved are provided to the other party;

2. The parties should attempt to agree on a resolution;

3. If the parties cannot agree within 21 days, the matter can be referred to a mediator;

If mediation is unsuccessful then we recommend you seek legal advice, if you have not done so already. 

Franchisors may provide recommended pricing schedules, however, they are not permitted to pressure franchisees to charge set prices. It is generally accepted that franchisors can set a maximum price for the goods and services sold by the business.