Franchising is a business system. It involves one party (the franchisor) granting another (the franchisee) the right to operate a replicated franchise business under that trade name and use established management, marketing and operating procedures. In return the franchisee commits to paying the franchisor a capital investment, ongoing fees and complying with franchise procedures.

The code has the force of law and requires franchisors to disclose specific information about a franchise to both potential and existing franchisees. It regulates the dealings between both parties in a franchise relationship and provides for dispute resolution mechanisms.

The person or company granting the franchisee the right to operate the business under the trade name and in accordance with the established operating system.

The person to whom the franchise is granted under a franchise agreement or who participates in the operation of the franchise as a franchisee.

For an agreement to be seen as a franchise agreement under the code it must have the
following four elements:
• an agreement between the parties, which may be written, oral or implied
• a grant by the franchisor to the franchisee of the right to carry on the business
• substantial or material association with a trademark, advertising or
commercial symbol
• agreement by the franchisee to pay the franchisor, or an associate, an amount

The document which provides detailed information about a franchise and is required to be given to potential and existing franchisees, by the franchisor, at various stages in the franchise relationship.

No, but it is important to get professional advice before you enter into a franchise agreement, because it is a significant decision and financial commitment. You will have to provide your franchisor with a statement saying that you have sought advice on the franchise from a legal adviser, business adviser or accountant.

Alternatively, if you have not sought this advice, you will have to provide your franchisor with a statement saying that you have been told you should seek advice but decided not to do so.

Either of these documents must be provided to your franchisor before you enter into a franchise agreement.

You must request your franchisor’s consent for a transfer of the franchise in writing. If your franchisor does not respond within 42 days, consent is taken as given. Although you may require your franchisor’s consent, your franchisor cannot be unreasonable. The reasons for which a franchisor can withhold consent include, for example, a proposed transferee being unlikely to be able to meet financial obligations or not meeting the selection criteria.

You should also check whether any other conditions are attached to your transfer— e.g. a fee—and ensure that any person to whom the franchise may be transferred evaluates the purchase independently and is aware of their rights and obligations.

If you provide money to a marketing or cooperative fund, the franchisor must prepare an annual financial statement of all the fund’s receipts and expenses for the last financial year within four months of the end of the financial year. A registered company auditor (or if the franchisor is a foreign franchisor—a foreign equivalent) must audit this statement. Where 75 per cent of franchisees agree, the requirement to audit the statement may be waived. However, this decision must be revisited every three years.

The franchisor must provide you with the financial statement and auditor’s report (if required) within 30 days after their preparation.

As a franchisee your responsibilities will centre around running the franchise efficiently and effectively in accordance with good business practice and franchise procedures. Your franchise agreement will primarily determine your responsibilities and you should make sure you understand these requirements before you sign the agreement.