What is a Disclosure Document?

 

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What is a Disclosure Document?

 

Under the Franchising Code of Conduct (the Franchising Code) all Australian franchisors must issue a disclosure document in a prescriptive form to a prospective franchisee, or when proposing to renew or extend the scope or term of a franchise agreement.

If you decide to franchise your business you will need to prepare a disclosure document to provide to prospective franchisees.

 

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Disclosure Document Requirements

 

The disclosure document must be:

  • signed by a director or other officer of the franchisor,
  • updated annually within 4 months of the end of the financial year,
  • given to a new potential franchisee or to an existing franchisee looking to renew or extend their franchise agreement at least 14 days before the franchisee signs the new franchise agreement. 

The disclosure document must be accompanied by a copy of the franchise agreement in its final form and a copy of the Franchising Code of Conduct itself.

 

 

Disclosure Document Contents

A disclosure document will need to contain the following information to comply with the Code.

 

The date of the disclosure document

A disclosure document must include on the first page, the date of preparation of the disclosure document.

The information contained in the disclosure document must be accurate as at the preparation date of the disclosure document or where the disclosure document provides for another date (such as the end of the last financial year) as at that date.

 

Franchisor’s details and business experiences

Franchisors must provide details of the business including business experience, business names, business associates and a statement that the business is solvent.

 

Litigation

The Franchisor must provide all details, if there are any, of any present litigation and any litigation which was commenced in the past.  The relevant litigation is generally for matters including fraud, dishonesty and any breach of franchise.

 

Existing franchisees

The disclosure document must contain details of all existing franchisees, this allows a potential franchisee to contact the existing franchisee with any questions they may have regarding the franchise business.

 

Intellectual Property

The franchisor must describe and list its intellectual property and outline the conditions which restrict the use of the intellectual property by Franchisees.  The franchisor also must provide any details of a licence agreement regarding the intellectual property.

 

Territory

The franchisor must provide details of any statements relating to the exclusivity of any territorial boundaries.

If the franchisor has a site-selection policy then the details of the site-selection policy must be disclosured.

 

Territory History

The franchisor must provide a prospective franchisee with a history of the territory or site in which it is proposed that the franchise business be operated.  The history is to be provided in a separate document to be included with the disclosure document.

 

Goods and Services

The disclosure document must contain information regarding the conditions which will be imposed on a franchisee regarding information about the supply of goods and services.

 

Fees and Payments

The disclosure document will provide details to you regarding the requirement and specifics of any franchisee payments to the franchisor.  This information must include items such as marketing fees, advertising fees or other financial obligations requiring contributions.

 

Obligations of the Franchisor

These include the franchisor’s obligations, contained in the franchise agreement, before and after the franchisee opens their business.  Any obligation contained in the franchise agreement which relates to the nature of training to be provided by the Franchisor must also be outlined.

 

Obligations of the Franchisee

The expected obligations on the franchisee, which are contained in the franchise agreement, must also be disclosed.  These obligations must include site selection, acquisition, training before and during the operation of the business, expected standards, warranties, customer service, insurance, marketing, required indemnities, records and reports and inspections and audits.

 

Marketing Funds

If the franchisor administers a marketing fund to which franchisees contribute, then details of the marketing fund and how the payments made to the marketing fund will be used must be disclosed.

 

Financial Details

A disclosure document must contain a statement which confirms the franchisor's solvency, together with the financial statements of the franchisor for the last two financial years or an independent audit report.

 

Other Documents

The disclosure document must contain all details of documents related to the franchise agreement, such as a lease for premises of the franchised business, a hire purchase agreement, a security agreement or a confidentiality agreement which you will be obligated to sign.

 

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.

 

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