Franchising is one of the most common ways businesses diversify into other territories. The head franchisor may have a successful operation with many franchisees in one jurisdiction, and is desirous of expanding his venture into another location or country. Sounds like a good idea but it’s essential you understand the rules associated with operating in a foreign location.
Within Australia the franchising rules are governed by the Franchising Code of Conduct. The code is aimed at guiding the relationship between the franchisor and their franchisees by setting requirements for both parties in regard to matters such as;
- Disclosure requirements for the head franchisor
- Terms that must be in a franchise agreement
- Obligation to act in good faith
- Resolving disputes
A foreign franchisor who wishes to establish their franchise in Australia can do so in a few ways. Firstly they can operate as the head franchisor and sell franchises under the normal system. Alternatively they can sell the rights to a new head franchisor to operate the region. In this case they may sell the Australia wide rights or perhaps a state by state right to operate.
Under this second option franchise fees will be paid by the franchisee operators to the Australian head franchisor. The Foreign owner of the franchise will also receive royalties from the Australian head franchisor.
In either case the set up must be done correctly by using accountants and lawyers who know the franchise rules. MSI Global Alliance can assist in this area through its worldwide association of professionals providing guidance in both the local and foreign country.