The risks of franchising
by
Norton Rose
Franchised businesses are susceptible to the same risks as other businesses. Factors such as the risk of economic downturn, increased competition, under-capitalisation and so forth need to be considered by any prospective franchisor or franchisee. However, because the network trades under a common brand and system, a problem can have wider ramifications than might otherwise be the case.
One of the major risks of franchising is legal action. A legal claim for damages may wipe out profits or impact on the viability of the network. As most of the assets of franchised businesses are intangibles, such as intellectual property and goodwill, the franchisor and franchisees are susceptible to any matter that damages reputation or consumer confidence. Franchise disputes can be a costly exercise and can impact upon management time and resources.
It is critical that franchisors comply with the law in their franchising activities. Franchising is quite heavily regulated in Australia both directly through the Franchising Code of Conduct and indirectly through provisions of the Trade Practices Act 1974 (Cth). The Act prohibits anti-competitive and unfair market practices including, amongst other things, unconscionable, misleading and disceptive conduct. These provisions can have particular application to franchising, particularly in relation to recruitment, supply and pricing issues, assignment and termination. The Franchising Code if Conduct contains important obligations relating to issues such as pre-contractual disclosure, assignment, dispute resolution and termination.
See the buying a franchise and running a franchise pages for further assistance.
This article was created by Deacons and appears courtesy of Austrade . 26.06.2007
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