Franchising as a Business Model

Franchising is a way of doing business. Key roles in franchising are the franchisor and franchisee.

A franchisor largely controls how the franchisee’s business is run. They control the name, brand, and business system the franchisee is going to use.

A franchisee bears the financial risk for their franchised business and pays money to the franchisor. In exchange for this money, the franchisor allows the franchisee to use the franchisor’s brand or system to sell products or services for a limited time. The franchisee must run the business according to the franchisor’s requirements.

Head to the ACCC website here for more detailed information on franchising.

Franchising Code of Conduct

All franchise businesses must adhere to the Franchising Code of Conduct. The Franchising Code of Conduct is a mandatory industry code under the Competition and Consumer Act 2010. The Code regulates Australian franchisees and franchisors.

Click here for more information from the Legislation.Gov.Au website.

The Difference Between a Franchise Agreement and a Franchise Licence

There are circumstances where the Franchising Code of Conduct may not apply and that’s if you are using a franchise licence as opposed to a franchise agreement.

The ACCC has set key criteria for determining if your business arrangement falls within the definition of a franchise agreement.

FRANCHISE AGREEMENT

+ This allows you to set up a franchised business.

+ You have access to all of the company’s IP, assets, suppliers and know-hows for running your business.

+ These tend to be more comprehensive than a franchisee licence.

+ You have to abide by all of the franchise rules & regulations as set out in your agreement.

FRANCHISE LICENCE

+ This gives the licensee the right to use a brand’s products for a fee. There may be little guidance on how to do so.

+ A licensor generally doesn’t have as much control over a licensee as a franchisor does over a franchisee.

+ Licence agreements tend to be less restrictive than franchise agreements.

Always seek independent legal advice when considering the purchase of a franchise business. They’ll assist you in ensuring all legal obligations are carried out by both parties, and whether or not you have a franchise agreement or licence in place.

The Pros & Cons of Buying a Franchise Business

If you’ve ever considered buying a franchise business, there are pros and cons to consider.

Business.Qld.Gov.Au have a handy guide on the advantages and disadvantages of buying a franchise. Head here for more information. Check out our social media posts below for a quick overview of the pros and cons:

 

In a franchise, the franchisor provides a developed way of doing business, ongoing guidance, systems and assistance in return for periodic payment of fees and/or purchases.

Buying a franchise can be a viable alternative to starting your own business but it’s still important to apply good business practices! Informed decision-making, hard work, time management, having enough money and serving your customers well—still applies.

Common franchise disputes

Unfortunately as with any commercial arrangements, disputes can arise. Common franchise disputes can include (but are not limited to):

➕ Breach of contract

➕ Misunderstandings around franchisor/franchisee legal obligations

➕ Franchise lease agreements

➕ Termination of the franchise agreement/licence

As there is often a power imbalance between franchisors and franchisees, the Franchising Code of Conduct sets out what they must do when there’s a dispute.

The Franchising Code of Conduct provides mechanisms for parties to a franchise agreement to try and resolve disputes in a timely and cost effective manner.

The ACCC also has a handy resource page for advice on franchising disputes. It includes further information on;

➕ Complaints & Disputes

➕ Mediation

➕ Legal Action

The ASBFEO (Australian Small Business & Family Enterprise Ombudsman) can also assist in the resolution of franchising disputes by referring the parties to trained mediators with commercial experience located across Australia.

Head here for more information.

At Litton Legal, we can assist you with all franchise matters. Whether it’s purchasing a franchise business, understanding your legal obligations in regards to a franchise, franchise disputes and more. Contact our friendly team on hello@littonlegal.com.au