expert advice: Bianca Sevastos | Partner | Baybridge Lawyers
UNDERSTANDING THE DOCUMENTATION
In the wake of the Covid 19 pandemic, it has been reported that many people are reassessing their lives, where they live and their sources of livelihood. Historically, whenever there has been an economic shock such as we have witnessed over the past two years, franchising as a sector has significantly grown as people change careers or otherwise seek new business opportunities.
In Australia, franchising is governed by the Franchising Code of Conduct (Code). Under this legislation, a Franchisor must give certain documentation to a prospective Franchisee to provide all the information required to make a reasonably informed decision to purchase the franchise business. Inevitably, this means that Franchisees are provided with rafts of documents prior to entering into the franchise relationship. While the volume of the documentation can be daunting, it is manageable with the right specialist advice to help you understand the documents and the process.
Franchising, as a business model, has proven to be enormously successful across the globe and particularly in Australia. With an estimated 79,000 franchise units, an annual turnover in the order of $128 billion dollars and employing more than 500,000 people there is no doubt that franchising makes up a significant portion of Australia’s economy.
What are the essential documents a Franchisor must give a Franchisee?
Some might argue that one of the factors for the continuing success of franchising in Australia is the enactment of specific and compulsory legislation that governs the relationship between Franchisors and Franchisees.
• Its current Disclosure Document;
20 business franchise MAGAZINE
The Code stipulates that Franchisors must provide the following documents to any prospective Franchisee to effect proper disclosure: • A Key Facts Sheet; • The Information Statement; • The Franchise Agreement in the form it is to be signed;
• A copy of the Code; and • Any other document pertaining to the franchise business, including any premises lease or licence (if applicable). The above documents must be given to the prospective Franchisee at least 14 days before the Franchise Agreement is signed. This is a mandatory disclosure period prescribed by the Code to give the Franchisee sufficient time to complete its due diligence on the Franchisor and to satisfy itself as to the viability of the franchise business. The Information Statement must be provided to you as soon as practicable after you formally apply or express an interest in acquiring a franchised business.
What is a Disclosure Document? A Disclosure Document is essentially a snapshot of the franchise network and is designed to give the prospective Franchisee key information about the franchise system and the running of the franchise. The Code sets out the format of the Disclosure Document and the information that is required, including: • Details of the directors of the Franchisor;
