Franchise Lawyer Penrith Area

A franchise is a contract or arrangement under which one person (the franchisor) permits another (the franchisee) to engage in a business of offering, selling or distributing goods or services under a system controlled by the franchisor which is associated with a trade mark, advertising or a commercial symbol owned by the franchisor.

The term “franchise” is usually used to describe three types of business arrangements:

• a product franchise being an arrangement whereby a distributor acts as an outlet for the products of a manufacturer on terms that give the distributor the exclusive right to sell the products within a specific market.
• a system franchise being an arrangement whereby a franchisor develops a unique or individual manner of doing business and permits the franchisee to use that system in a controlled fashion in the operation of the franchisee’s independently owned business.
• a processing or manufacturing franchise being an arrangement whereby the franchisor provides an essential ingredient or know-how to a manufacturer.

The Franchising Code of Conduct regulates franchises in Australia. The Code imposes disclosure responsibilities upon the franchisor before a franchise agreement is entered into and provides a cooling off period for franchisees.

The benefits of a franchise system vary according to the particular franchise system but can include:

• reduction of business risk.
• access to the franchisor’s management systems and industry knowledge;
• use of an already-established business name;
• flow-ons from the franchisor’s advertising, buying power, established goodwill and trademarks;
• support of the franchisor;

Some of the drawbacks of a franchise can be:

• less independence through franchisor control of management techniques and, possibly, of supply sources and product/service range;
• reputation of franchise may be affected by factors beyond the franchisee’s control;
• could have an unreliable franchisor;
• sale of head franchise;
• defined/limited geographical market.

Before entering into a franchise agreement, you should receive from the franchisor a Disclosure Document which includes a copy of the proposed franchise agreement. You should also ensure you receive the following information:

• A complete description of the business.
• The track record of the franchisor and current motives for franchising.
• Evidence of the franchisor’s strategic plan – where is the business heading?
• What the franchisor offers under the agreements, such as name, product, reputation/goodwill, site location, advertising budget and back-up assistance.
• Fees involved, including up-front capital and percentage of takings payable to the franchisor.
• Terms of sale of goods supplied by the franchisor and if you can purchase from outside the franchise network.
• Success/failure of other franchisees in the same business.
• Obligations upon termination of franchise.
• Guidelines for sale of the franchise.
• A franchise Operations Manual, if available.
• The franchise agreement document and the period of franchise.