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Franchising is a type of business ownership
which allows an individual, partnership or
company to operate an independent business
under the banner of a business that is already
established. This allows immediate entry
into the market. The franchise
arrangement offers managerial, advertising and
administrative support and advice to the
franchisee, and also reduces costs through
participation in bulk purchasing and collective
advertising. The franchisor, on the other
hand, benefits from an injection of funds to
enhance expansion.
A franchise agreement usually takes the form
of a written contract between the parties which
outlines the rights and obligations of both the
franchisor and franchisee. The franchise
relationship is also affected by the
Franchising Code of Conduct which has certain
provisions regarding disclosure requirements,
the conditions of the business (including
details of leases, disclosure of materially
relevant facts, methods of transfer,
termination procedures etc.) and methods of
dispute resolution.
It is important to obtain legal advice prior
to entering into a franchise agreement to
ensure you understand the effects of all
clauses in the agreement. Before entering
into a franchise agreement, it is important to
check the reputation, track record and
financial stability of the franchisor very
carefully, and to find out what advertising
budget and back-up services the franchisor
offers and whether they will continue to be
supportive after the agreement is signed.
The agreement should clearly stipulate
precisely what fees are payable to the
franchisor and how they are to be
calculated. It is also important to
clarify who has legal responsibility for
problems with the product, what the total
investment will be, whether some items (like
equipment) and the product itself must be
purchased from the franchisor, whether there
are any restrictions on the location of future
franchises in relation to the distance to your
location, and what rights the franchisor has to
end the agreement. Under the Franchising
Code of Conduct, the franchisor must give you a
disclosure document and allow you at least 14
days to consider it before signing the
franchise agreement.
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