Franchising is defined by the ACCC as “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”.
Franchising is regulated under the Franchising Code of Conduct, an industry code mandated under the Trade Practices Act 1974.
Franchising Common terms
Franchisor – a person who grants a franchise or otherwise participates in a franchise as a franchisor to licence the right to operate the business under the trade name and in accordance with the established operating system.
Franchisee—a person to whom a franchise is granted or otherwise participates in a franchise as a franchisee.
Prospective franchisee—a person who deals with a franchisor for the right to be granted a franchise.
Multi-site Franchisee – a Franchisee who owns and operates more than one site or territory across the same brand or possibly over several different franchise brands.
Franchise Fee – the initial fee paid by a Franchisee to the franchisor for the right to operate the franchise.
Franchise Royalty – the ongoing fee the Franchisee pays the franchisor for ongoing assistance and support; usually calculated as a percentage of weekly sales.
Marketing Levy – the ongoing levy the Franchisee pays into a marketing fund, the franchisor uses for marketing of the brand; usually calculated as a percentage of weekly sales.
Franchise Agreement – for an agreement to be 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; and
- Agreement by the Franchisee to pay the franchisor, or an associate, an amount in return for the grant of these rights and usages.
Disclosure Document – the document which provides detailed information about a franchise and is required to be given to potential and existing Franchisee’s by the franchisor, at various stages in the franchise relationship.