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The Franchise Model

Franchising is a distribution channel for goods and services. It can be an efficient manner in which to grow your business b y including sufficiently motivated operators to maintain the standards required to operate the business.

What is a “ Franchise Agreement? ”

In Australia a Franchise Agreement is defined in the Franchising Code of Conduct (“ the Code ”) as an agreement that takes the form, in whole or part, of any of the following:

  • A written agreement; 2.1.2 . an oral agreement;
  • An implied agreeme nt; and
  • In which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan ABOUT This guide assists businesses considering using a franchise system as a distribution channel. The guide broadly covers the issues which must be considered before franchising.

This guide is not intended to be exhaustive and Franchise Legal recommend that prospective franchisors obtain professional advice from advisors and experts in franchising . Introduction for Prospective Franchisor – Franchise Legal Page 2 of 6 substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and

  • Under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:
  • Owned, used o r licensed by the franchisor or an associate of the franchisor; or
  • Specified by the franchisor or an associate or the franchisor; and
  • Under which, before starting business or continuing the business, the franchisee must pay or agree to pa y to the franchisor or an associate of the franchisor an amount including, for example:
  1. An initial capital investment fee; or
  2. A payment for goods or services; or
  3. A fee based on a percentage of gross or net income whether or no t called a royalty or franchise service fee; or
  4. A training fee or training school fee; but excluding:
  5. Payment for goods and services at or below their usual wholesale price; or
  6. Repayment by the franchisee of a loan from the franchisor; or
  7. Payment of the usual wholesale price for goods taken on consignment; or . payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement. (2)


For the definition of Franchising above, each of the following is taken to be a franchise agreement:

  • A transfer, renewal or extension of a franchise agreement;
  • A mot or vehicle dealership agreement.


None of following constitute a franchise agreement:

  • An employer and employee relationship; 2.3.2 . a partnership relationship;
  • A landlord and tenant relationship;
  • A mortgagor and mortgagee relatio nship;
  • A lender and borrower relationship;
  • the relationship between the members of a cooperative that is registered, incorporated or formed under any of the following laws:
  1. Co – operatives Act 1992 of New South Wales;
  2. Co – operatives Act 1996 of Victoria;
  3. Cooperatives Act 1997 of Queensland;
  4. Co – operative and Provident Societies Act 1903 of Western Australia;
  5. Co – operatives Act 1997 of South Australia; (vi) Co – operative Industrial Societies Act 1928 of Tasmania;
  6. Co – oper ative Societies Act 1939 of the Australian Capital Territory;
  7. Co – operatives Act 1997 of the Northern Territory; (ix) the Corporations Law.

Introduction for Prospective Franchisor – Franchise Legal Page 3 of 6 A franchise is succinctly described as the grant by one party, (the franchisor) to another party (the franchi see) of the right to carry on a business under a particular name or trade mark according to an identified system, usually within the territory or at a l ocation and for an agreed term.

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