Franchise Disclosure Documents: What You Need To Know

When you’re a franchisor, your responsibilities begin very early on. From the moment you talk to your first potential franchisee right down to when the franchise agreement might come to an end – at each phase you’ll be required to fulfil your duties and obligations. 

When done correctly, taking the proper measures and following your legal duties can make the franchise process much more transparent, open and smoother. On the other hand, not doing so can lead to some pretty serious consequences. 

Ensuring you’re giving truthful and updated information to the public about your franchise is essential. This includes providing a comprehensive franchise agreement and disclosure document to potential franchisees. 

Let’s talk about these documents in more detail. 

What Is A Franchise Agreement and Disclosure Document? 

A franchise agreement is a legal contract between the franchisor and franchisee that outlines the terms and conditions of the franchise. The disclosure document, on the other hand, provides potential franchisees with information about the franchisor and the franchise system. This includes details about the franchisor’s financial status, the costs involved in starting and operating a franchise, and the terms and conditions of the franchise agreement. 

The main purpose of these documents is to provide anyone thinking of becoming a franchisee with information they can easily access about franchises, so they can make well informed decisions. 

Even though it may seem like these documents only benefit the public, it’s actually pretty advantageous for businesses as well. As a franchisor, you’re required to be honest and transparent about your business to all franchisees, at every stage of your relationship. 

If a franchisee feels like they have been misled, then this could lead to pretty messy disputes. Ensuring you have provided all the relevant and correct information not only helps keep the public and potential franchisees informed, it aids in protecting your liabilities as well.  

Why Do I Need Legal Help For My Franchise Agreement and Disclosure Document? 

As the franchise agreement and disclosure document are comprehensive legal documents that will be provided to potential franchisees, it’s a good idea to get a legal expert to help out with what you’re providing. 

When you take a look at the format, you’ll find these documents ask some administrative questions about your business. These include: 

• Contact information 
• Business number
• Industry division
• Business description 
• Number of franchises
• Location of franchises

It’s a good idea to have these details sorted and all your numbers finalised prior to filling out your questions. Along with the administrative questions, the disclosure also requires you answer more comprehensive and complex questions, detailing matters such as: 

• The cost of establishing the franchise business
• Whether payment is required prior to entering into a franchise. If so, the amount of money required as well as the purpose for this payment 
• Details regarding the length and potential extension of the franchise agreement 

When providing answers to questions like these, it’s imperative to ensure the information on there is not only correct however, it’s also presented in a way that can’t be misconstrued.

Fortunately, that’s where legal experts excel. 

A legal expert can clearly and concisely present the information needed. That way, you can be assured everything is being communicated as it needs to be. If information is misleading (even by accident) this can cause some headaches down the line – it’s always a wise idea to get a legal expert to help out, that way you know everything is being handled correctly. 

What Happens If I Don’t Update My Franchise Agreement and Disclosure Document? 

Updating your franchise agreement and disclosure document is a legal requirement. If you are currently a franchisor, then you should already have these documents in place. 

If you haven’t yet become a franchisor but are considering it, then you need to make sure you have these documents ready at least 14 days before you sign a Franchise Agreement. 

Failing to have these documents when they should be there is considered a breach of the Franchising Code of Conduct. Therefore, you risk incurring legal penalties the longer you wait to have these documents in place. 

Aside from legal penalties, if a potential franchisee notices you haven’t provided these documents, it might cause them to lose interest in your business. Having these documents demonstrates legal compliance and transparency – two very important qualities for any franchisor.  

If you’re a franchisor and you’ve already completed the task of getting your business’s details in the franchise agreement and disclosure document – then great! However, it’s important to update those details (or confirm they are still correct) at least every year. 

What Other Responsibilities Do I Have As A Franchisor? 

The franchise agreement and disclosure document aren’t the only legal obligations you have if you plan on turning your business into a franchise. 

Franchising is a pretty regulated area. If you’re a franchisor, then franchisees are more often than not, in a vulnerable position to you. Even though you might mean well, good intentions don’t always eliminate a power imbalance. Therefore, strict rules such as those in the Franchising Code of Conduct are there to protect franchisees from getting taken advantage of the franchise market. 

As a franchisor, it’s imperative to be familiar with the code and follow it completely. Not doing so can lead to legal penalties and your franchisees potentially suffering a loss – which could end up being a messy situation altogether. We understand the code is a bit of a complex document, so it’s always a good idea to get a legal expert in franchising to help explain things to you. 

Furthermore, it’s also a worthwhile investment to get the help of a legal expert when it comes to your franchise legal documents. To turn your business into a franchise, there’s going to be a number of legal documents you’ll need – the exact ones depending on your unique situation. Expertly drafted documents will help protect both your business and your franchisee, plus it can help facilitate a smooth business relationship right from the start. You can learn more about the legal documents needed for franchising here. 

Next Steps 

Having a comprehensive franchise agreement and disclosure document is an important part of your legal obligations as a franchisor. Ensure it’s done correctly, seek the help of a legal expert. To summarise what we’ve discussed: 

• Fulfilling responsibilities as a franchisor is crucial from the initial stages of engaging with potential franchisees to the end of franchise agreements
• Compliance with legal duties, including maintaining transparency, is vital to avoid serious consequences
• Providing a comprehensive franchise agreement and disclosure document to potential franchisees is essential
• Accurate and updated information in these documents benefits both potential franchisees and franchisors by fostering informed decision-making and protecting against disputes
• Legal assistance is recommended for completing these documents, ensuring accuracy and clarity in the provided information 
• Failure to update these documents can lead to legal penalties and may deter potential franchisees due to perceived lack of transparency 

If you would like a consultation on the franchise agreement and disclosure document, you can reach us at 0800 002 184 or [email protected] for a free, no-obligations chat.

---