Property law 2

What you need to know before becoming a franchisor

Franchising a business can be a lucrative growth strategy for expanding your reach and market share while still maintaining control of your brand and operational system. As a franchisor, you grant others the right to use your business system and branding in exchange for fees and adherence to your standards.

This guide explores key considerations for franchising your business, ensuring compliance and maximising the potential of this business model.

The Franchise System

Franchising grants franchisees a license to operate your business model under a defined system and is governed by the Franchise Agreement. This system typically encompasses:

Intellectual Property: Includes trademarks, logos, and confidential business information. These distinguish your business and are essential for maintaining consistency across all the franchise locations.

Branding: Consistent branding helps franchisees leverage the brand's reputation to attract customers, maintain brand loyalty, and drive sales.

Operational expertise: Detailed manuals outlining your proven business systems are essential for maintaining quality across all franchise locations. These manuals provide franchisees with the necessary tools to replicate your success.

Franchisee support: Ongoing support mechanisms, such as training programs and operational assistance, helps franchisees navigate challenges and achieve success. This support fosters a strong relationship between franchisors and franchisees.

Exclusive territory: Defined geographic areas where each franchisee operates will prevent competition between franchisees and ensure a fair distribution of customers. This exclusivity can enhance the franchisee's ability to build a loyal customer base.

Franchising Regulations

The franchising industry is regulated by the Competition and Consumer Act 2010 and the Franchising Code of Conduct. These regulations govern:

Disclosure requirements: This statement is a legal requirement and includes information about the business, the system, and the terms of the franchise agreement.

Cooling-off period: Granting franchisees a designated timeframe to review the agreement allows them to assess the opportunity and seek legal or financial advice before committing.

Contractual terms: Ensuring fair and balanced terms within the franchise agreement helps to protect the interests of both parties and promotes a healthy franchising relationship.

Dispute resolution mechanisms: Establishing clear procedures for resolving any disagreements helps prevent conflicts from escalating and ensures a fair resolution process for both parties.

The Franchise Agreement

A meticulously drafted Franchise Agreement is the foundation of your franchising model. P&B Law will work closely with you to understand your business model, intellectual property, and commercial agreements. The agreement will typically cover:

Grant of franchise rights: The legal right to operate your business under the franchise model is granted to the franchisee.

Franchise term: The defined duration of the franchise agreement outlines the length of time the franchisee has the right to operate the business under the franchise model.

Territory and location: The specific geographic area where the franchisee can operate is defined to prevent overlap with other franchise locations.

Franchise fees: The ongoing fees paid by the franchisee to the franchisor cover the cost of using the franchise system and receiving ongoing support and assistance.

Establishment costs: Initial expenses associated with set-up and operation are outlined to provide the franchisee with a clear understanding of the investment required to establish the business.

Training and development: The ongoing training and support provided by the franchisor help franchisees develop the skills and knowledge needed to operate the business successfully.

Operational rules and regulations: Guidelines for maintaining brand consistency ensure that all franchise locations operate in accordance with the franchisor's standards and expectations.

Confidential operations manual: The detailed guide outlining your business processes provides franchisees with a blueprint for running the business.

Sale and transfer of the franchise: Outlines the process for transferring ownership of the franchise to a new owner.

Default and termination: Actions and consequences for breach of contract are specified to protect the interests of both parties.

Post-termination restraints of trade: Restrictions for protecting the franchisor's business interests and intellectual property.

Marketing and advertising funds: Contributions towards cooperative marketing efforts help promote the brand and drive sales across all franchise locations.

Security measures: Guarantees to ensure compliance with the franchise agreement.

P&B Law can help you navigate the complexities of franchising your business and ensure a successful and compliant system. Contact one of our lawyers to discuss your franchising goals and receive expert legal guidance throughout the process.

Please note: The information covered in this guide is general and should never be substituted for professional legal advice. Contact us for further information.