Buying into an existing franchise can be a smart business strategy as opposed to launching a new venture. This method allows businesses to capitalise on an already strong brand, and manage the sale of goods or services under the trading name of the established brand.
On the other hand, a successful business may consider expanding into bigger markets by establishing a franchising model themselves. For both situations, there are legal implications and seeking sound advice from lawyers experienced in franchising can help manage the process smoothly. The following three factors are part of the franchising process and should be considered carefully.
What legal documents are needed for franchising?
Commercial agreements often require a variety of legal documentation, and franchising is no exception. Franchise agreement documents, in particular the disclosure document must comply with the Franchising Code of Conduct (the code). Businesses interested in franchising need to comply with this code, which is regulated by the Australian Competition and Consumer Commission. The recommended course of action is to consult with lawyers while starting up the franchise to ensure you comply with your obligations under the code.
What are some legal obligations when buying a franchise?
Upon entering into a franchise agreement, you are legally committed to manage all business operations as per the requirements and stipulations of the agreement. Further rules may apply depending on what is included in the franchise operating manual. The obligations are usually pre-determined by the franchisor, and all franchise owners must abide by these to maintain a level of consistency across all franchises. The franchisor must though act in good faith and comply with their obligations under the code and at law.
What types of franchises are there?
There are two main types of franchises, according to the Franchise Council of Australia. The first is when an entire business concept is licenced, common in fast food chains. This format standardises the name, appearance and business operations across all franchises. The second is when only certain products or trade names are franchised, and the franchisee is legally licenced to sell or manufacture the franchisor’s products. This may occur with a new car dealership or the bottling of a common soft drink.
Scheduling an appointment with commercial lawyers can provide business structuring advice specific to franchising.
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