What is a franchise? 4 signs the business fits the bill

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Inside Franchise Business: a guide to what makes a franchiseA franchise is a business opportunity in which the business owner, or franchisor, grants to the franchisee the right to operate a business (or distribute services or goods) under the franchisor’s banner.

It doesn’t matter what the business owner calls the business structure, if it fits with certain criteria, it is a franchise.

Why does this matter? Well, every franchise operating in Australia (whether locally owned or an overseas business) is governed by the Franchising Code of Conduct.

For example, a motor vehicle dealership will be understood to be a franchise, and therefore subject to the Code requirements.

When franchisors get it wrong, they can be liable for errors they might make under the Code.

4 signs a business is a franchise

At the core of the business is a contract, a franchise agreement that outlines, among other things, an agreed period of time for the franchisee to operate the business and the fees payable in exchange for use of the licence, operating systems and branding.

Law firm Mills Oakley points out the easy way to work out if what’s on offer is truly a franchise…

It comes down to four simple elements that must be included in a business agreement for it to be considered a franchise:

1. There is a written, oral or implied agreement

2. There is a system or marketing plan, organised by the franchisor, under which franchisees will operate their business.

3. The franchisor will grant the use of the trade mark, advertising and commercial symbols under which the franchisee business will operate.

4.The franchisees are required to pay a fee of various types to the franchisor before and during the conduct of the business.

Seeking legal advice from an experienced franchise lawyer before signing any agreement is highly recommended.

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