Legal Documents Required When Buying Or Selling A Franchise

Australia is one of the most franchised nations in the world. Franchising allows successful businesses to expand without spending too much and entrepreneurs to purchase and run a venture with ongoing support from the franchisor.

In Australia, all franchisees and franchisors must comply with the Franchising Code of Conduct. As a niche area of the law, it is important when buying or selling a franchise that you have the right legal documents and that they are reviewed by a franchise lawyer.

What Legal Documents Do I Need When Buying or Selling a Franchise?

Franchise Agreement

A franchise agreement is a contract between the franchisee (business purchaser) and franchisor (business owner). The agreement sets out how the franchise relationship will work, this includes the term of the franchise, the payment of fees to the franchisor (such as training fees and royalties) and the obligations and responsibilities of both parties. Franchise law is highly complex and many franchise agreements that are created by franchisors (the business owner) fail to include proper mechanisms and clauses regarding dispute resolution and termination of the agreement. It is always advisable to consult with a franchise lawyer.

Disclosure Statement

The business owner (franchisor) must disclose any important information to help the purchaser make an informed decision when buying the franchise. This is a primary duty of the franchisor and provides the franchisee with relevant information about the franchise, including:

  • Notifying them about changes to the franchise system;
  • Majority ownership or control of the franchisor; and
  • Court proceedings against the franchisor or its directors.

These obligations exist throughout the term of agreement and the statement must be approved by an independent legal advisor, accountant or business advisor.

Hire a Franchise Lawyer

Franchise law is constantly changing, and as a potential franchisee it is beneficial to have a lawyer involved throughout the entire purchasing process and beyond. You will find that most franchisors are not experienced in preparing sufficient legal documents, which can leading to potential disputes concerning breaches and terminations of franchise agreements. It’s important to reiterate that franchise contracts are written by franchisors so they are almost always one-sided! A franchise lawyer will ensure your agreement suits your needs and is fair on both parties.

Final Thoughts

Franchise law is complex, it is imperative that you have the right legal documents if you are buying or selling a franchise. Get in touch with a franchise lawyer to have these documents reviewed and better understand your rights and obligations as a franchisee or franchisor.

LawPath provides access to all the legal documents you will need when purchasing or selling a franchise. Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 700+ expert lawyers or to get answers to your legal questions.

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