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One of the three key elements of the Australian Franchising Code of Conduct was the requirement for franchisors to provide disclosure information to new and renewing franchisees. Part 2 of the Franchising Code details how and when information should be disclosed.
Australian disclosure requirements follow well-accepted international principles and are outlined in two pro-forma annexures to the Franchising Code of Conduct.
These effectively form templates for all franchisors to follow in the preparation of their franchise disclosure documents.
Whilst you can download blank templates free, they are extremely hard to fill in withoutsome sort of guide, and sadly the Trade Practices Act has criminal sanctions (click * here for info) for those who fail to fill them in correctly - it's called " (click *uhere for info)"misleading and deceptive conduct" and "I made a mistake" is not an acceptable excuse.
There are two types of disclosure possible under the Australian Franchising Code of Conduct:
Annexure 1 disclosure applies to those businesses with an expected annual turnover of $50,000 or more at any time during the term of the franchise, and requires franchisors to provide extensive and detailed information about their business and the franchise arrangement proposed.
Annexure 2 disclosure applies to those businesses with an expected annual turnover less than $50,000 at any time during the term of the franchise. Annexure 2 is also known as short-form disclosure. In essence, it is a cut-down version of the disclosure template provided in Annexure 1, the idea being that the shorter version would be easier and more cost-effective for franchisors of very small businesses to prepare.
However a franchisee who has been provided with Annexure 2 (short form) disclosure can request the long form (Annexure 1) disclosure at any time, so there is little practical benefit in issuing short form disclosure (in addition to which the $50,000 turnover limit may also be impractically low for most franchise businesses).
We supply the longer template with instructions on how to cut it down.
Australian Franchise Disclosure Requirements
Irrespective of whether short (Annexure 2) or long form (Annexure 1) disclosure is to be used, all franchisors (including master franchisees, which are referred to in the Code as sub-franchisors) are required to comply with the following under the Code:
The franchise disclosure document must be signed by a director or other officer of the franchisor
Franchise disclosure documents must be updated annually within four months of the end of the financial year (ie. by the end of October each year)
Franchise disclosure documents must be given to potential new franchisees and to existing franchisees proposing to renew their agreements, or to an existing franchisee on request.
The franchise disclosure document must be provided at least 14 days before the potential franchisee signs their franchisee agreement.
The franchise disclosure document must be accompanied by the franchise agreement in the form in which it is to be signed, as well as a copy of the Franchising Code of Conduct itself
The franchisor must receive a written statement or receipt from a franchisee to say that they have received, read and had the chance to understand the franchise disclosure document before the franchisee can sign a franchise agreement
The franchisor must also receive signed statements that the franchisee has had advice from any or all of a lawyer, accountant or business advisor, or provides a statement that they have received that type of advice or have decided not to seek such advice
Additionally, there exists a continuous franchise disclosure provision in the Code which requires franchisors to notify franchisees within 14 days of any materially relevant facts.
$990, with the worked example to follow. $1800 with the agreement.
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