Franchising Law FAQs
With extensive commercial law experience, our solicitors often get questions regarding franchising law from both the franchisor and franchisee perspective. Read below for more information about franchising law or contact our commercial lawyers today for advice relating to your matter.
What is a franchise?
A franchise is a grant of authority from a franchisor, who is the person that owns the business, to the franchisee (the person gaining the right) to carry on business through marketing and distributing or providing the relevant service or products the franchisor’s business operates in as the franchisor. Essentially, it allows someone to conduct business using the established brand of another.
Are there different types of franchises?
There are four main types of franchises in accordance with the franchise. They are:
a.) Manufacturer-Retailer – this allows a franchisee to sell products of the franchisor. A typical example of this can be seen through new motor vehicle dealerships. The car company grants the right to sell their cars through a franchise agreement.
b.) Manufacturer-Wholesaler – this grants the franchisee the right to manufacture and distribute the product themselves. It means the franchisee is responsible for obtaining business and marketing etc.
c.) Wholesaler-Retailer: this occurs where a retailer, as franchisee, purchases products from a franchisor wholesaler. This is common in hardware and automotive accessory and product stores.
d.) Retailer-Retailer: the franchisor markets a service or product under a common name and a standardised system. This seems commonly through fast food chains, petrol stations etc.
Is it possible to franchise an idea?
Franchising in Australia is governed by a code of conduct which is administered by the Australian Competition and Consumer Commission. Technically speaking an idea is fictitious, it does not exist. Therefore you cannot franchise an idea while it remains, an idea.
Do I need a licence to become a franchisor?
There is no franchise specific licence per se, however, you will need to obtain all necessary business permits and licences to carry on business legally for the franchise you operate. You must also ensure compliance with the Franchising Code of Conduct.
When will I know that my business is ready to be rolled out as a franchise?
Before you can change your business structure to that of a franchise it must be certain that the business can survive a variety of market conditions. Generally speaking, five years is said to be enough to prove this.
This is deemed an adequate period by the Franchise Council of Australia as it allows for sufficient time to develop the relevant operating systems required for operations as a business.
What is the Franchise Council of Australia and should I join?
The Franchise Council of Australia is a not-for-profit trade association that aims to establish standards for the best practice of business utilising franchising systems, to provide education on franchising and to educate the governments on the same assisting with regulation.
Through the development of the code of conduct, it adds credibility and a sense of quality to all franchises who are members of the organisation.
It is voluntary to join, meaning you do not have to be a member of it, but its purpose is to be of assistance and therefore it will only be beneficial to be a member. Essentially it is a body that provides you with support.
How long does a franchise last?
The period a franchise lasts will be outlined in the franchise agreement. There may be agreements as short as a single year but more commonly franchise agreements are entered into for three to five years.
Do I have to pay fees and royalties if I enter into a franchise?
Depending on the franchise agreement will depend on what fees and how often they are to be made. Usually, there is an up-front setup fee. This may range from $2,000 all the way up to over a million dollars. In addition to this, it is typical for franchisees to pay ongoing fees mainly for support and using the brand. This may be fixed fee or calculated as a percentage of the income generated by the business.
What should I do prior to purchasing a franchise?
Before purchasing a franchise you must ensure it is the right decision for you. It would be most beneficial to enlist the service of a legal practitioner to assist with the due diligence process. Further, all disclosure material must be assessed carefully. It will also be beneficial to seek consultation with an accountant to allow them to review all relevant accounts and records.
How can a franchise lawyer help me?
A lawyer can be essential to negotiations in buying or selling a franchise. A lawyer is also important to gain advice on trademarks and intellectual property issues that will arise. Advice can be provided on the franchising code of conduct and how it can be of assistance in operating a franchise. Further, if you already have a franchise and are experiencing problems a lawyer can help you come up with effective solutions.
Will you negotiate a franchise agreement on my behalf?
After a discussion and gaining instruction, we can go back and forth between the respective parties to negotiate on your behalf.
What is a franchise code of conduct?
The Franchise Code of Conduct is an attempt to regulate franchise relationships between franchisees and franchisors. It contains necessary material for a successful franchise relationship to blossom. Either party has the right to resolve any dispute.
What happens with franchise disputes and breaches of the agreement?
Methods for dealing with disputes will be outlined in the franchise agreement. The disputes methods should abide by the Franchise Code of Conduct. The code of conduct requires parties to attempt to resolve disputes first by writing to the other party outlining the dispute and the desired outcome and how to get there.
If no outcome is achieved within 3 weeks then the parties will be required to attend mediation. Then failing that avenue, the parties may take legal action to have the matter resolved in a court of law.
Are there any laws that regulate franchising in Australia? If so, what are they?
Franchising in Australia is governed by the Australian Competition and Consumer Commission. Predominantly governed by the corresponding act the Competition and Consumer Law Act 2010 (Cth). Implemented through the previously mentioned act is the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth).
This contains the Franchising Code of Conduct and covers a variety of other matters relevant to franchising.
For further advice, contact ABKJ today. Servicing the Gold Coast and surrounding regions.