Legal
Issue No. 21 - February/March 2005
Expanding your business by franchising
by Kelly Ey
We have all witnessed the business boom fuelled by franchising. Cibo Espresso is a great South Australian success story. Dr PC is another. There are many.
Some businesses start out with an expansion strategy that is focused on franchising from the outset. Others gradually establish a brand, a product or a system of doing business over time – and then others want to buy into the action.
The Essence
The key elements of a typical franchised business are:
- A recognisable trade mark or name;
- Distinguishable products or services; and
- A proven method for doing business.
This intellectual property is owned by the master franchisor and franchisees are granted rights for its use. The franchisee owns and operates their own business and pays fees to the franchisor to use Kelly Ey, Senior Associate, Kelly & Co its intellectual property. Success of the franchisee is good for the franchisor. As well as returning greater franchise fees, usually calculated as a percentage of profits, good business strengthens the franchisor's brand name and recognition in the community. So the franchisor will also usually provide ongoing training and group marketing services to its network of franchisees - working on the business, while allowing the franchisees to focus on working in the business. It is a win-win.
Legal Considerations
In order to achieve the win-win, there are a number of key legal issues that should be considered for each new franchise. They include:
- The form of a franchise agreement and the statutory disclosures required for new and renewing franchises are set out in the Franchising Code of Conduct, issued under the Trade Practices Act. There are serious consequences for franchised businesses arrangements entered into after 1 October 1998 that fail to comply.
- For franchisors, corporate structuring – including the owner of key intellectual prope...
