The law defines a Franchise Agreement as an agreement (written, verbal or implied) under which:
- one party (the franchisor) grants another party (the franchisee) the right to carry on a business supplying goods or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor;
- the business is associated with a particular trademark, advertising or a commercial symbol owned, used, licensed or specified by the franchisor or its associate; and
- the franchisee is required to pay, or agree to pay an amount to the franchisor before starting or continuing the business.
Why is the definition significant?
If your contract or agreement falls within the definition, this activates the requirement to comply with the Franchising law. Heavy penalties are imposed by the law for non-compliance.
If you are a proposing to appoint a distributor, agent or licensee for the sale of your product or service, you will need to consider if your contract is covered by the Franchising law.
If your contract is a franchise agreement, the law sets out a requirement to provide significant written disclosure statements and other documents to a proposed franchisee.
If you are considering entering into a franchise agreement, you should obtain independent legal and financial advice regarding the terms of the agreement and the Franchising law.