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Franchising can be a rewarding experience, but it is a huge step for your business. Importantly, you’ll need to make sure you have the right legal documents in place to undergo the franchising process.
Here’s what you need to know about franchising and the documents you’ll need.
Why Should I Franchise?
There are many advantages to franchising—particularly as it is commonplace for the franchisee to fund and provide capital for the franchise.
Franchising allows businesses to scale and grow, which helps your brand capture more of your market and create goodwill. Customers will become more familiar with your business and brand name!
And, just because you’re leaving your business in the hands of your franchisee, it doesn’t mean that you’ll have no control over the business. While empowering other business owners, you can still ensure and maintain the quality of your products or services. These are the types of things you’ll need to capture in your Franchise Agreement.
What Do Documents I Need To Franchise?
While there are many advantages to franchising, it’s a big commitment, as franchising is a highly regulated area.
Franchises are subject to the Franchising Code of Conduct, which is enforced and administered by the ACCC.
It is extremely important to adhere to these rules and regulations as there are hefty penalties attached in cases of non-compliance that can be issued by the ACCC, or even legal claims from the franchisee.
There are certain legal documents that will need to be put in place when franchising your business. Some of these include:
- Franchise Agreement: This is the document between the franchisor and franchisee that solidifies the relationship in writing. It allows the franchisee to carry on business in accordance with the processes and marketing strategy decided by the franchisor. Typical terms in these agreements include marketing fees, royalties, training given to franchisees, performance criteria, etc.
- Disclosure Document: This is a document mandated by the Franchising Code of Conduct that gives prospective franchisees important information about the franchise system. It also gives existing franchisees information about conducting business. This document will typically have information like pending litigation against the franchisors/directors, contact details of the current franchisees (unless confidential), initial and upkeep costs to operate the franchise, and termination procedures (e.g. options to renew).
- Confidentiality and Restraint of Trade Annexure: This is so that franchisors can ensure franchisees do not use the franchisor’s IP, compete with the franchisor in the same market or protect the franchisor’s goodwill.
- Deed of Prior Representations: This document will lay out the representations the franchisee was made to believe before entering into the Franchise Agreement. This is particularly useful in places where there are third parties like agents involved, who make representations when recruiting franchisees. Franchisors can then choose not to enter into the Franchise Agreement if they believe some of the representations may not necessarily materialise—in order to avoid misleading the franchisee.
Franchising Resources
Laws around franchising can be quite dense, and it is an area of law that requires expert legal help. We have a number of resources to guide you in various stages of the franchising process, such as:
- Selling A Franchise
- What To Do At The End Of A Franchise
- Franchise Agreements
- What Fees The Franchisee Has To Pay
- Terminating A Franchise Agreement
- What To Do With A Bad Franchisee
- Franchisees’ Legal Obligations
- What Are Franchising Royalties?
- Franchise Grant Process
Talk To A Lawyer
Having a lawyer to prepare your Franchisor Package is extremely useful as they can walk you through all of the basic requirements under the Franchising Code of Conduct. They can also properly draft any documents to reduce the risk of any misunderstandings and complex disputes.
Taking your business in a direction which is highly regulated can seem daunting, but we’re here to help!
Feel free to get in touch with us at team@sprintlaw.com.au or on 1800 730 617 for more information! We’re available any time for a free, no-obligation consultation.
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