Legal Checklist for Setting Up a Franchise in Australia

Franchising can be an exciting way to grow your business. Instead of opening and operating every new location yourself, you can expand through franchisees who invest their time and money into running new sites under your brand.

But setting up a franchise in Australia isn’t just about having a great logo and a training manual. Franchising is heavily regulated, and the legal foundation you put in place early can make the difference between a scalable, investable franchise network and a stressful (and expensive) dispute waiting to happen.

If you’re a small business owner thinking about franchising, this guide will walk you through the practical legal steps, key documents, and compliance areas you should understand before you offer your first franchise.

What Does “Setting Up a Franchise” Actually Mean?

When people say they want to “franchise their business”, they usually mean they want to let other business owners (franchisees) operate a business using:

• your brand (name, logo, reputation);
• your proven systems (how you deliver the product or service); and
• your ongoing support (training, marketing, operational assistance),

in exchange for fees (such as an upfront franchise fee and ongoing royalties).

It’s different from simply licensing your brand or selling a business. With franchising, you’re generally creating an ongoing relationship and a network that needs consistent standards, ongoing compliance, and a reliable way to manage issues when they arise.

This is why franchising isn’t just an “operations project” - it’s also a legal and risk-management project.

Is Your Business Ready To Franchise?

Before you invest time and money into setting up a franchise in Australia, it’s worth checking if your business is actually franchise-ready. A strong franchise system usually has a few things in place already.

You Have A Proven Business Model

Franchisees are buying into something that’s already been demonstrated to work. If your profit margins, supplier arrangements, or customer demand are still experimental, you may be franchising too early.

Your Brand And IP Are Protectable

Your brand is one of the key assets you’re “selling” as part of the franchise. If you don’t clearly own your business name, logo, website content, and other intellectual property, it becomes harder to control the network.

It’s also important to ensure the franchisor entity (you, or your company) legally owns the brand assets. If you’re operating through a company, that can also affect your internal governance documents like a Company Constitution.

You Can Standardise How The Business Runs

A franchise system needs consistent processes across locations. This typically means you’ve already built (or are ready to build):

• standard operating procedures (SOPs);
• training materials;
• quality standards;
• branding and marketing guidelines; and
• approved suppliers (where relevant).

You’re Prepared For Ongoing Compliance And Support

Franchisees aren’t passive customers - they’re businesses you’ll be supporting, managing, and sometimes enforcing obligations against. You need the time and resources to onboard franchisees properly and keep them compliant across the network.

If you’re not ready for that level of structure and ongoing relationship management, it may be better to grow using company-owned sites first, or explore alternatives like licensing (which has a different risk profile).

Step-By-Step: Setting Up A Franchise In Australia

If you’ve decided franchising is the right growth strategy, here’s a practical legal roadmap you can follow.

1. Choose The Right Business Structure For The Franchisor

Many franchisors operate through a company structure rather than as a sole trader, because it can provide clearer separation between personal assets and business liabilities (though it’s not a “complete shield” in every scenario).

The best structure for you depends on your goals, risk tolerance, tax position, and how you plan to raise capital. If you’re setting up a franchisor company with co-founders or investors, you’ll also want to think early about ownership and decision-making rules (for example, different share classes, director powers, and how disputes will be handled).

2. Protect Your Brand Before You Recruit Franchisees

Franchising usually involves letting other businesses trade under your name. That only works well when you’ve taken steps to protect the brand.

In practice, this can include:

• checking your brand name is available (and doesn’t infringe someone else’s rights);
• registering trade marks where appropriate; and
• ensuring your IP is owned by the correct entity (for example, your franchisor company).

This becomes crucial if you ever need to enforce brand rules or stop a former franchisee from continuing to trade using your name.

3. Draft A Compliant Franchise Agreement

Your franchise agreement is the contract that sets the rules of the relationship. It typically covers things like:

• the term of the franchise and renewal rights;
• fees (upfront fees, ongoing royalties, marketing fees);
• territory and exclusivity (if any);
• training and support;
• brand standards and operating rules;
• supply arrangements and approved suppliers;
• reporting requirements and audit rights;
• restraint and confidentiality obligations; and
• termination and exit processes.

In Australia, franchising is regulated under the Franchising Code of Conduct. That means your franchise agreement should be drafted with that framework in mind, not just as a general “commercial contract”.

When the agreement is drafted properly, it doesn’t just protect you - it also helps set expectations upfront and reduces the chance of disputes later.

4. Prepare The Franchise Disclosure Document And Other Pre-Contract Requirements

When you’re setting up a franchise in Australia, it’s usually not enough to just have a signed agreement. In most cases, you’ll need a disclosure document and other supporting materials provided to the prospective franchisee within specific timeframes.

Disclosure is about transparency. It gives franchisees the information they need to make an informed decision before they commit.

As a general guide, the Code commonly requires you to give the disclosure document and franchise agreement at least 14 days before the franchisee signs or pays a non-refundable amount. There is also typically a cooling-off period after signing (often 14 days), subject to exceptions and adjustments set out in the Code. Getting disclosure right is one of the most important parts of franchising compliance - because disclosure problems are a common trigger for disputes.

5. Put Systems In Place For Recruitment And Onboarding

Franchise recruitment is a sales process, but it also has legal risk. You’ll want to ensure what you say to prospects is accurate and doesn’t create unintended promises.

For example, if you make overly confident profit statements, you can end up in hot water under the Australian Consumer Law (ACL) for misleading or deceptive conduct. If you share financial information, it should be current, accurate, and supported by reasonable grounds (and framed carefully, with assumptions and disclaimers that actually reflect the opportunity). It’s often safer to focus on verified historical performance, transparent assumptions, and clear disclaimers (drafted properly).

6. Plan For Ongoing Compliance Across The Network

Once you’ve granted a franchise, your role shifts to managing and supporting the network. This includes:

• updating franchise documents as your system evolves (including required annual updates to disclosure);
• ensuring brand and quality standards are enforced consistently;
• handling disputes early (and following the Code’s dispute resolution expectations); and
• keeping proper records.

Good franchising is not “set and forget”. It’s an ongoing commercial relationship that needs proactive management.

What Laws Do You Need To Follow When Franchising In Australia?

When you’re setting up a franchise in Australia, you’re stepping into a regulated space. Here are the core legal areas small business franchisors should have on their radar.

The Franchising Code Of Conduct

The Franchising Code of Conduct sets out rules around disclosure, good faith obligations, dispute resolution, and how franchising relationships should be managed.

Even if your franchisees are experienced operators, the Code still applies. This is why you should treat “franchise legal documents” as a specialised area, not something to patch together from general templates.

Australian Consumer Law (ACL)

The ACL affects your advertising, your recruitment conversations, and your dealings with franchisees and end customers. At a practical level, it means you need to be careful about how you represent expected earnings, site performance, or the “success” of the franchise.

ACL compliance is also relevant to your customer-facing business terms and warranties. If you sell goods or services, you’ll want to be aware of consumer guarantee obligations (including quality and fitness for purpose) and how your contracts and marketing materials reflect that.

Employment Law (And Avoiding Network-Wide Risk)

Many franchisees hire staff. While franchisees are usually responsible for their own employees, franchisors should still think carefully about how they support franchisees without creating unintended legal exposure.

As part of your broader compliance approach, it helps to ensure franchisees use proper employment documentation. For example, where appropriate, a franchisee may need an Employment Contract that reflects award coverage and Fair Work requirements.

It’s also worth remembering that rostering, pay practices, and workplace policies are high-risk areas for small businesses. Setting expectations and providing compliant templates (carefully drafted) can reduce headaches across the network.

Privacy And Data Collection

If your franchise system collects customer data (for example, online bookings, loyalty programs, email marketing, CCTV, or delivery addresses), you may have privacy obligations.

This can get tricky in a franchise network because data might be collected by:

• the franchisor (head office);
• individual franchisees; or
• both parties through shared systems.

Clarity matters. Your franchise documentation and customer-facing policies should reflect who collects the data and how it is used. If you run an online store or centralised website, you’ll typically need a Privacy Policy that matches what your business actually does.

Intellectual Property (IP) And Brand Control

Franchise networks rely on IP. This includes your trade marks, designs, software, domain names, training materials, and marketing collateral.

Your franchise agreement should make it clear:

• what IP the franchisee is allowed to use;
• how they can use it (and what’s not allowed);
• what happens to IP use rights when the franchise ends; and
• how you can enforce brand standards.

This is one of the key reasons franchising works as a growth model - it lets you scale while maintaining consistent brand presence.

What Legal Documents Will You Need As A Franchisor?

Legal documents are a big part of franchising because you’re creating repeatable relationships and repeatable rules. While your exact setup will depend on your industry and growth plans (and there can be exceptions depending on the arrangement), here are some of the most common legal documents involved when setting up a franchise in Australia.

• Franchise Agreement: The core contract that governs the franchisor-franchisee relationship, including fees, term, standards, training, and termination.
• Disclosure Document: The document provided to prospective franchisees so they can make an informed decision before signing.
• Operations Manual: Not always a “legal contract” on its own, but it is often incorporated by reference into the franchise agreement and needs careful drafting and control.
• Trade Mark And IP Arrangements: Your system should clearly document brand ownership and licensing rights across the network.
• Website Terms And Conditions: If you operate a website that customers or franchisees use, your Website Terms and Conditions can set the rules around access, acceptable use, and IP.
• Privacy Documentation: If you collect personal information, your customer-facing privacy documents should match your systems and legal obligations, including a Privacy Policy.
• Key Commercial Agreements: Depending on your model, you may need supplier agreements, software licensing arrangements, lease-related documents, or marketing service agreements to support the franchise network.

Many franchisors also build internal governance documents to support growth (particularly if you are bringing in business partners, investors, or expanding into multiple states). If you’re setting up a company as the franchisor entity, a well-structured Company Constitution can be part of that foundation.

Common Mistakes When Setting Up A Franchise (And How To Avoid Them)

Franchising can be a powerful growth strategy, but we often see small business owners run into problems because they try to move too quickly or cut corners in the early stages. Here are some common pitfalls to watch out for.

Rushing Into Franchise Sales Without A Compliant Legal Pack

It can be tempting to “test the market” by signing your first franchisee quickly. The risk is that if you haven’t prepared compliant documentation and disclosure (and provided it within the required timeframes), you may create legal exposure and relationship problems that are hard to unwind.

In franchising, getting the first deal right matters - because whatever you do for the first franchisee often becomes the precedent for the next ten.

Overpromising On Earnings Or Performance

Franchise prospects often ask: “How much will I make?” It’s a fair question, but it’s also a high-risk area.

It’s important to avoid making statements that could be seen as guarantees. If you provide financial information, it should be accurate, supported by reasonable grounds, and appropriately framed (including assumptions and disclaimers that match what you’re actually relying on).

Not Thinking Through Territory, Exclusivity, And Site Control

Territory and exclusivity can become a source of tension. A franchisee might assume they “own” a region, while the franchisor may want flexibility to expand through different channels (new sites, online sales, corporate accounts, pop-ups, and so on).

Your franchise agreement should clearly define:

• what the franchisee’s territory is (if any);
• what exclusivity applies (if any); and
• what you can still do inside or outside that territory.

Weak Systems For Enforcing Standards

If your brand relies on consistent quality, you need enforceable standards and practical mechanisms to monitor compliance.

This often includes audit rights, training requirements, reporting obligations, and the ability to direct corrective action (balanced appropriately with the franchisee’s independence as a business owner).

Not Planning For Exit, Transfers, And Disputes

Even great franchise relationships can end. Franchisees may want to sell, retire, change industries, or exit due to performance issues. It’s crucial to plan for this from day one.

A strong franchise agreement will deal with:

• transfer/sale conditions (including approval rights);
• handover obligations;
• restraint and confidentiality;
• what happens to branding and customer data; and
• dispute resolution processes.

Having these issues clearly documented early can save you significant stress later.

Key Takeaways

• Setting up a franchise in Australia involves more than a great business model - you’ll need compliant legal documents, strong systems, and a plan for ongoing support and enforcement.
• Before franchising, make sure your business is franchise-ready: proven profitability, standardised operations, and protected brand assets.
• The Franchising Code of Conduct and Australian Consumer Law (ACL) are central to franchising compliance, especially around disclosure and what you promise to franchisees.
• Your franchise agreement, disclosure document, and operations manual should work together to create clear expectations and reduce disputes.
• Privacy, employment, and intellectual property issues often become more complex in a franchise network, so it’s worth setting them up properly from the start.

This article is general information only and isn’t legal advice. If you’d like help setting up a franchise in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.