What is Franchising

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”.[1]

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.

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