If you have a successful business that you want to expand, you can consider franchising. If managed well, it can open your product or service to new markets and extend your brand's reach.

There is no specific franchise registration or approval process, but establishing a franchise is a legal process and can take some time.

Not every business will suit expansion through a franchise model. If you do decide a franchise model is right for you, recruiting new franchisees can be challenging.

Not everyone is suited to franchising, of those who are, not everyone will suit your brand. Recruiting the wrong person could cost your brand more over time than it would to recruit the right candidate. Research shows that while digital marketing attracts the highest quantity of enquiries, the best franchisee candidates come from people already working in your business or through referrals from existing franchisees.

Before you franchise your business

Complying with the law

As a franchisor, you must comply with the law of contract, Franchising Code of Conduct and Australian Consumer Law (ACL).

A franchise agreement is a contract that contains legal rights and obligations.

The Franchising Code of Conduct requires franchisors to disclose certain information to both potential and existing franchisees. It also sets out minimum conditions relating the rights of the parties under a franchise agreement.

Under the ACL you must not use misleading, deceptive or unconscionable conduct in your business dealings.

Independent legal advisers can assist you to understand other federal and state laws that affect franchising your business. For example, there are workplace laws that affect certain franchisors. Franchisors can be held responsible for their franchisees' conduct and subject to enforcement action, court proceedings and penalties if their franchisees have contravened the Fair Work Act 2009 (FW Act).

Learn more about the Franchising Code of Conduct.

Learn more about the Australian Consumer Law.

Learn more about the other laws that may apply when franchising your business.

Find out more about franchisor responsibility in regards to workplace laws.

Working relationship with franchisees

If you decide to franchise your business, it’s vital that you have a good working relationship with your franchisees. Take care when you select a franchisee to ensure they are a good fit for your franchise business. Under the Franchising Code you must act in good faith in your business dealings with each other.

Learn more about acting in good faith under the Franchising Code.

Learn more about the financial penalties and infringement notices if you breach certain provisions of the Franchising Code.

Franchise tax obligations

As a franchisor, you need to understand your tax obligations and how franchising fees are treated for tax purposes. It's also important to review your income tax and goods and services tax (GST) reporting requirements. In most cases all payments you receive from a franchisee will be assessable income. They will also involve GST.

As with any business, your business structure, assets and income will determine your taxation requirements.

Learn more about franchising and tax.

Record keeping obligations

By law, you’re required to keep written material that the Franchising Code requires, or allows a franchisee or prospective franchisee to provide to you.

The documents you must keep include:

  • requests for a disclosure document
  • notices of dispute
  • confirmations of receipt of disclosure document
  • professional advice statements
  • requests to transfer a franchise to a third party (and any additional information provided regarding the transfer)
  • requests not to disclose former franchisee details
  • any documents that you use to support any claims or statements made in your disclosure document.

You must keep your records for six years from when they were created. The Australian Competition and Consumer Commission (ACCC) can request the documents in accordance with its power to conduct checks of a franchisor’s compliance with the Franchising Code.

Learn more about record keeping.

Continuous disclosure obligations

A franchisor has extensive disclosure obligations to prospective and existing franchisees of materially relevant facts. This includes continuous disclosure of materially relevant facts in relation to change of ownership, litigation, insolvency and other significant events.

Failure to disclose as required by the Franchising Code can give rise to penalties and franchisee remedial action.

Marketing funds

For franchisors or master franchisors that control or administer a marketing fund, the Franchising Code has restrictions on how you deal with the marketing payments contributed to that fund:

  • you must maintain a separate bank account for marketing payments
  • you must contribute to the fund on the same basis as other franchisees for each franchised business unit that you operate
  • franchisees are entitled to detailed information about how the fund is used
  • marketing payments may only be used to meet expenses that:
    • have been disclosed in the disclosure document
    • are legitimate marketing expenses
    • have been agreed to by a majority of franchisees that are required to make payments to the fund or
    • reflect the reasonable costs of administering and auditing the fund.

The franchisor is required to provide the franchisee with marketing fund statements each year. The statements need to be audited (unless 75 per cent of franchisees have voted to agree that statements do not need to be audited).

Franchising resources

Check out the Franchisor compliance manual.

Read the franchising code frequently asked questions.

Learn about unfair contract terms.

Read next

Find out the process to help you resolve a franchising dispute.