As franchisors adapt to the Franchising Code of Conduct introduced on 1 April 2025 (the new Franchising Code), we look ahead to the next round of Code changes coming into effect on 1 November 2025.
In this article we consider the introduction of "specific purpose funds".
As we let you know in our previous article The 2025 Franchising Code of Conduct, the term "marketing fund" in the new Franchising Code has been replaced by the term "specific purpose fund".
Under the new Franchising Code all of the obligations that previously applied to marketing funds, will from 1 November 2025, apply to any funds that fall within the definition of a "specific purpose fund".
A specific purpose fund is any fund controlled or administered by a franchisor (or their associate), that franchisees are required to contribute to under the terms of their franchise agreement. These funds must be used for a clearly defined common purpose related to the operation of the franchise business. Examples of specific purpose funds include marketing funds, conference funds, and training funds.
The new Franchising Code regulates the administration of specific purpose funds (formerly marketing/cooperative funds).
Under the transitional provisions in the new Franchising Code, until 31 October 2025, the new "specific purpose fund" regulations are only applicable to marketing funds. That is, if you operate a conference fund, the new regulations will not apply to the conference fund before 1 November 2025.
From 1 November 2025 the new "specific purpose fund" regulations will be applicable to all specific purpose funds.
However, this is subject to the further qualification that the new Franchising Code only applies to franchise agreements entered into after 1 April 2025. So, the regulations in relation to specific purpose funds will only apply to franchise agreements entered into after 1 April 2025, and the pre 1 April 2025 Franchising Code will still regulate most franchise agreements.
If you are operating a marketing fund, and you have entered into a franchise agreement after 1 April 2025, you may want to treat marketing fund contributions made under all franchise agreements as being regulated by the new Franchising Code.
If you are operating a marketing fund and you have not entered into a franchise agreement after 1 April 2025, your franchise agreements will all be regulated by the pre 1 April 2025 Franchising Code, and you do not need to change your processes.
If you have been receiving ongoing group payments for other things, such as conference fees or IT upgrade fees, and you have entered into a franchise agreement after 1 April 2025 (under which you are still receiving ongoing group payments), the new Franchising Code will be applicable to the franchise agreements entered into after 1 April 2025, and we suggest that you get legal advice from a franchise lawyer about how these funds should be treated after 1 November 2025.
You must maintain a separate bank account specifically for the specific purpose fund. If you have both a marketing fund and a conference fund, after 1 November 2025, you will need a separate bank account for each of these funds.
These bank accounts must not be mixed with any personal, business, or other unrelated funds. The purpose is to ensure transparency and clear tracking of all contributions and expenditures related solely to the particular fund.
The maximum penalty under the new Franchising Code, for a failure to maintain a separate account with a financial institution, for payments to a specific purpose fund is 600 penalty units ($198,000.00).
Prior to 1 November 2025, you are still required to maintain a separate bank account for a marketing fund.
If you are operating any company businesses under the franchisor company, then from 1 November 2025, you must make payments to each specific purpose fund, on behalf of each company business unit, on the same basis as franchisees.
The maximum penalty under the new Franchising Code for a failure to contribute to the specific purpose fund on behalf of each business unit operated by the franchisor, on the same basis as each franchisee, is 600 penalty units ($198,000.00).
Prior to 1 November 2025, you are still required to make payments to a marketing fund, on behalf of each company business unit, on the same basis as franchisees.
Consistent with the previous treatment of marketing funds, from 1 November 2025, monies paid into a specific purpose fund governed by the new Franchising Code, can only be spent on:
The maximum penalty under the new Franchising Code, for making payments from the fund other than payments included in the categories set out above, is 600 penalty units ($198,000.00).
Prior to 1 November 2025, any marketing or advertising fees held in the marketing fund may only be paid to:
You must keep accurate and detailed records of all transactions – deposits, withdrawals and balances associated with the specific purpose fund. These records should be sufficient to allow for annual financial statements and audits.
The fund administrator (usually the franchisor) must prepare an annual financial statement (the Annual Financial Statement) within 4 months of the end of the financial year, detailing all contributions to, and expenditures from, the specific purpose fund. This statement must be provided to franchisees within 30 days of preparation.
The Annual Financial Statement should include sufficient detail of the receipts and expenses of the specific purpose fund so as to give meaningful information about:
The maximum penalty under the new Franchising Code for a failure to prepare an Annual Financial Statement as required by the new Franchising Code is 600 penalty units ($198,000.00).
Annual Financial Statements for marketing funds, prepared prior to 1 November 2025, need to comply with the requirements of the pre 1 April 2025 Franchising Code and NOT the new Franchising Code. For more detail about marketing fund obligations in the pre 1 April 2025 Franchising Code please read our article here.
Also, the inclusion of the "percentage of total income spent on each of the following expenses", is a new requirement under the new Franchising Code, which will be applicable after 1 November 2025, to franchise agreements entered into after 1 April 2025.
Each specific purpose fund’s Annual Financial Statement must be independently audited, unless at least 75% of contributing franchisees vote to waive the audit requirement. The audit report must be distributed to franchisees within 30 days of receiving the audit report from the auditor.
The maximum penalty under the new Franchising Code for a failure to have the Annual Financial Statement audited (if required) and give a franchisee a copy of the audit of the Annual Financial Statement (if required), is 600 penalty units ($198,000.00).
From 1 November 2025 disclosure documents must disclose about each specific purpose fund:
In addition, from 1 November 2025, the disclosure document must include a copy of the most recently prepared annual financial statement for the fund.
The regulations in relation to "specific purpose funds" are part of the second tranche of changes under the new Franchising Code, which apply from 1 November 2025.
As these changes take effect from 1 November 2025, you should prior to the 1 November 2025 deadline:
As this is a complex area, we recommend getting advice from a franchise lawyer to ensure that you comply with the regulations.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.