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Roles in franchising
A franchisor largely controls how the franchisee’s business is run and controls the name, brand, and business system the franchisee is going to use.
A franchisee bears the financial risk for their franchised business and pays money to the franchisor. In exchange for this money, the franchisor allows the franchisee to use the franchisor’s brand or system to sell products or services for a limited time. The franchisee must run the business according to the franchisor’s requirements.
Besides the franchisor and franchisee, others that may be involved in franchising include:
- Master franchisors give permission to another person or company to participate in or grant franchises under their business system. This means, for example, they may allow a franchisor to grant and manage franchises in a particular state or territory.
- Associates of the franchisor have a relationship with the franchisor that is related to the franchise system. For example, someone who is a supplier to a franchisee, allows a franchisee to lease or occupy premises, or is involved in marketing activities for the franchise system. An associate can be a director, a company related to the franchisor, a director of a company related to the franchisor, or a partner of the franchisor. If the franchisor is a company, an associate can also be someone who owns, controls or has a certain amount of voting power in the company.
Different laws apply in franchising. These laws do not reduce the commercial or business risks of setting up a franchise system or buying a franchise.
The Franchising Code of Conduct applies to franchising in Australia to help address some of the problems caused by the power imbalance in the franchise relationship.
The franchise agreement
A franchise agreement is a contract between a franchisor and a franchisee that explains what they can and can’t do when running the franchise.
A new vehicle dealership agreement is also a franchise agreement.
Read more about franchise agreements, including the kinds of things that can be in a franchise agreement, and how to recognise a franchise agreement.
When a business is and isn't considered a ‘franchise’
Even if an agreement isn’t called a ‘franchise agreement’, it is considered a franchise agreement and the franchising code applies if the agreement has certain features.
There are also some agreements that can look like a franchise agreement, but the code still won't apply.
Some franchise opportunities may not be genuine. For example, pyramid selling schemes can sometimes be dressed up to look like a franchise system. You can take steps to identify whether it’s a genuine business.
Guidance and information about franchising
The ACCC publishes information for each stage of franchising:
- Thinking about buying a franchise
- Beginning a franchise agreement
- During a franchise agreement
- Extending or ending a franchise agreement.
We also provide guidance about:
- The obligation to act in good faith and what this means for franchisors and franchisees
- Franchisor obligations when giving information to franchisees
- Franchising laws including the franchising code
- Where to get help when things go wrong
- What the ACCC does in franchising.
We provide links to: