Franchising is one of the most popular strategies for business growth because it allows a business to expand to multiple locations and significantly increase its market presence without large capital investments and marketing cost.
Before you decide to franchise your business, you should seek advice from a specialist franchise lawyer who will guide you through all the aspects of franchising.
Business Plan: At the outset you need to prepare a business plan for franchising your business including issues relating to structure of the franchise, franchisee profile and allocation of territories to the franchisee, staffing resources, franchisee support system, financial analysis for your own business and that of the franchisee. You also need to set out the amount of the initial investment that will be involved while franchising your business.
Drafting an appropriate Franchise Agreement: An appropriate Franchise Agreement should include clauses with regard to the term of the agreement, rights of renewal, obligations of the contracting parties, franchise fee, insurance, governing law, termination and any other relevant clause(s) that the parties deem fit. The agreement should also include the standard of the service or products to be provided or sold by your franchisee and the method by which these standards are enforced.
Compliance with the Franchising Code: You are required to comply with the Franchising Code as required under the Competition and Consumer Act, 2010 which essentially sets out your rights, obligations, information you must disclose to your franchisees. As a franchisor, you are required to develop and maintain a compliant disclosure document. The Franchising Code also sets out the procedure for dispute resolution with respect to any dispute arising between a franchisor and a franchisee by the Office of the Franchising Mediation Adviser(“OFMA”).
Understanding your Tax Obligations: As a franchisor, you need to understand your tax obligations and how franchising fees are treated for tax purposes. You need to review your Income Tax and Goods and Services Tax (GST) reporting requirements. Generally all payments you receive from a franchisee will be assessable income and those payments will also attract payment of GST, provided the franchisor is GST registered. Payments from the franchisee to the franchisor generally include initial franchise fee, franchise renewal fees, franchise service fees or royalties, advertising fees, transfer fees and training fees.
Finding franchisees: You can find your prospective franchisees through a number of ways such as franchise websites, advertisements on franchise magazines, national newspapers carrying franchise features and franchise exhibitions. To support your franchisee recruitment you also need to create relevant franchise literature that outlines the structure and nature of your franchise and the relevant criteria that need to be fulfilled in order to become one of your franchisees.
Franchise Management Team: Your franchise management team should be responsible for selecting franchisees, providing ongoing support, monitoring performance and reporting, carrying out credit control and providing technical advice for franchisees.
Protecting your intellectual property: You need to ensure the protection of your intellectual property while franchising your business as it includes the brand name, trade mark, business methods and your unique and innovative business ideas. Your Franchise Agreement should clearly set out the guidelines your franchisee is supposed to conform to while using your intellectual property. Our intellectual property lawyers in Sydney can provide advice on protecting your IP.
Occupational Health and Safety (OH & S): As a franchisor, you have certain obligations towards your franchisee(s) with regard to occupational health and safety obligations. As part of this obligation, your Franchise Agreement and Operating Manual needs to comply with all the OH & S laws and ensure safety of all people involved in the franchising process.
At Owen Hodge Lawyers, our team of team of Sydney-based franchise lawyers can guide you through the legal process of franchising your business. In addition, we can refer you to our network of consultants and advisors for non-legal issues. Please feel free to contact our team at Owen Hodge Lawyers if you have any question or require any assistance.
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