Franchising to Financial Freedom

17 November, 2016

Many people dream of getting out of the rat race and starting their own business. While the decision to start your own business can be exciting, and even liberating, every business owner understands that the process can also be quite taxing. Perhaps the biggest issue when starting your own business is obtaining and retaining a loyal customer base. This is also known as the goodwill of the business.

Because of this, many people are deciding to take the option of becoming franchisees in renowned companies. Some examples of franchise-based businesses are McDonald’s restaurants and Caltex service stations.

There are usual two parties to a franchise, that being the Franchisee and the Franchisor. The Franchisor agrees to allow the Franchisee to use their trade marks, or other registered intellectual property, in return for royalties and other fees payable by the Franchisee. The Franchisee benefits in so far as the Franchisor usually has an established level of goodwill and there is a loyal customer base for its products.

Unlikely other business structures, such as a joint venture or partnership, the Franchisee and Franchisor are not undertaking the business activity in concert, but are governed by the terms of the Franchise Agreement. The Franchise Agreement is the important document which establishes the relationship between the parties, and will specify such items as the fees which are to be paid to the Franchisor, dispute resolution provisions and how the Franchisee is to occupy the premises from which the business will be conducted.

Franchise Agreements are regulated by the Australian Competition and Consumer Commission (ACCC) which enforces the Franchising Code of Conduct (the Code) which came into force on 1 January 2015. The Code sets out the laws which govern the permissibility of certain provisions which have been inserted into Franchise Agreements. The Code can have the effect of rendering certain clauses to a Franchise Agreement void, regardless of whether the parties have agreed to its insertion.

Furthermore, the Code has introduced compulsory disclosure requirements upon the Franchisor which must be served upon any prospective Franchisee at least fourteen (14) days prior to the Franchisee executing the Agreement. The Franchisor is required to disclose such matters as any existing franchises that they may have, their intellectual property and the supply of goods and services which are to be provided to the Franchisee under the Agreement.

The Code has also provided Franchisees with a seven (7) day cooling-off period from the date which they signed the Agreement. Should the Franchisee choose to exercise their cooling-off rights, the Franchisor must return all monies paid to them, subject to any reasonable retention of monies which have been expressly disclosed to the Franchisee. The Franchisor does not have reciprocal rights in this respect.

The parties are also required to comply with the Competition and Consumer Act (Clth) 2010 (the Act) which protects the rights of the Franchisee from, among other things, any misleading or deceptive conduct by the Franchisor.

While opening a McDonald’s or Domino’s Pizza franchise can be financially rewarding, and an exciting experience, one must be mindful of the legal issues which surround Franchise Agreements.

The professional and experienced staff at Access Law Group can assist you with respect to providing the right advice in relation to such Agreements and take some of the stress out from running your business so that you can concentrate on achieving your financial goals.