In Short
- Franchise Disclosure Documents are required by law in some regions and must be provided to potential franchisees.
- These documents outline essential details about the franchise, including financial performance, fees, and legal history.
- Businesses must update their Franchise Disclosure Documents annually to remain compliant and ensure franchisees are well-informed.
Tips for Businesses
Ensure your Franchise Disclosure Document is clear and up-to-date. It should cover all necessary details like financial performance, fees, and legal history. Regular updates help maintain transparency with franchisees and protect your business from legal issues. Consider legal advice to ensure full compliance with relevant regulations.
Franchising is a popular business model for growth and expansion in New Zealand. This may be a good option if you wish to grow your already successful business. However, you must ensure you plan accordingly to protect your business interests and future pathways. Part of this process is preparing appropriate legal documentation, specifically the franchise disclosure document. This article will provide some background on disclosure documents and explain whether you need one for your New Zealand franchise.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Franchising Law in New Zealand
Unlike Australia and the United States, New Zealand has no laws that solely regulate franchising. However, general trading laws and other relevant regulations still apply, such as:
- fair trading laws;
- consumer law;
- contract law;
- employment law;
- privacy law; and
- intellectual property law.
Therefore, you must draft robust and fair documentation to protect your business and avoid messy mistakes.
One essential document you will need is your franchise agreement. This document sets out the terms of your commercial relationship with a franchisee. If there is a dispute with a franchisee, this will be the first document you turn to determine your best course of action.
However, if you are a Franchise Association of New Zealand (FANZ) member, you must abide by their Code of Practice and Code of Ethics. They are a nationwide organisation that provides resources and support to franchises and specific standards of operation. Accordingly, becoming a member with them will directly impact whether you need a franchise disclosure document.
What is a Franchise Disclosure Document?
Like your franchise agreement, a disclosure document is a crucial part of the onboarding process for franchisees. When potential franchisees are considering joining your franchise, they will likely want to find out crucial information about your establishment to help them decide. This document will provide franchisees with essential information about your franchise system.
Franchise disclosure documents can contain sensitive information about your franchise. Therefore, you may ask potential franchisees reading it to sign a confidentiality agreement promising not to share its contents with third parties outside the sale.
However, franchisees will not rely solely on a disclosure document to make their purchasing decisions. Although, it can be a valuable tool for their research process and one you can utilise to your advantage.
Continue reading this article below the formDo I Need a Franchise Disclosure Document?
Franchises in New Zealand are not required to provide prospective franchisees a disclosure document. However, you must have one if you have a Franchise Association of New Zealand (FANZ) membership. The FANZ requires you to provide a disclosure document to all prospective franchisees at least 14 days before signing the agreement. You should also update the document at least once a year.
You should have a disclosure document drafted when setting up your franchise, regardless of whether you are a FANZ member. This will offer clarity for both your franchisees and ensure they make an informed decision when investing in your business.
What Do I Include in a Disclosure Document?
A good disclosure document should contain all the necessary information to inform prospective franchisees properly. We outline essential information to include in a disclosure document in the table below.
| Information | Examples | Relevance |
| Company profile | This includes a name and description of company officials, and relevant experience of officials. | Provides prospective franchisees the opportunity to conduct their own research on franchise management. This is important to understand who they will be working with. |
| Franchise outline | This might include the franchise history, franchise intellectual property such as trade marks, upfront and ongoing costs, a summary of obligations, details relating to termination of the agreement and training and support available. | Ensures that the franchisee does not experience surprises when they enter the franchise network. Avoiding surprises – particularly negative ones – facilitates trust between you and your franchisees. |
| Purchase details | Conditions of use of the franchise’s intellectual property, details of the franchise’s operating systems and training for the franchisee. | Ensures the franchisee understands exactly what they will receive in return for their payments. Again, this facilitates trust with your franchisees. |
| Franchisee history | Details of current, past and terminated franchisees. | Allows the prospective franchisee to contact those with experience being a franchisee and operating within the franchise. |
| Financial information | This includes a name and description of company officials and relevant experience of officials. | Insight into financial performance will inform the purchase of a franchise and help manage expectations. |
| Miscellaneous information | If there is a cooling-off period and if a deposit is required. | Any relevant information that will inform the prospective franchisee’s decision-making is useful to include in a disclosure document for complete transparency. |
Why Should Franchises Have a Disclosure Document?
1. Comply With the Franchise Association of New Zealand (FANZ)
Again, although providing prospective franchisees with a disclosure document is optional, if you have a FANZ membership, you must have a disclosure document per their Code of Practice. Membership of the FANZ has several benefits, such as providing you with:
- credibility, as the FANZ represents franchises committed to the best practice possible;
- government advocacy, as the FANZ has correspondence with government agencies and departments; and
- access to conferences, seminars and industry events that are focused on franchising.
Failure to comply with FANZ’s Franchising Code of Practice means you will not be able to reap the above benefits of FANZ membership.
2. Ensure Franchisees Are Informed
A disclosure document aims to ensure prospective franchisees understand the nature of the franchisor-franchisee relationship they would be entering before purchasing. It also ensures they have all the necessary information to make informed decisions before they take up the franchise opportunity. As such, a disclosure document can provide them greater confidence that they are making a good decision by investing in your franchise network.
This also benefits the franchise network, as those buying your franchises are informed about your franchise processes.
3. Avoid Allegations of Misrepresentation
Providing a franchise disclosure document ensures franchisees understand precisely what they are purchasing when they decide to enter a franchise agreement.
If it is found that there were any misrepresentations at the time the franchisee purchased the franchise, they may be able to make a complaint to the Commerce Commission or sue you for misleading conduct. If it is later found that misrepresentations were made during this process, the franchisee would be entitled to compensation. In cases where the franchisor purchased a franchise based on deceptive or fraudulent conduct, they may be able to sue on such grounds.
An accurate disclosure document can help avoid such allegations. However, misrepresentation is a complex subject that requires legal support to navigate.
Key Takeaways
An accurate and up-to-date disclosure document ensures that prospective franchisees understand your franchise before purchasing. Franchises in New Zealand are not legally required to have a disclosure document. However, some benefits of providing such a document include:
- complying with the Franchise Association of New Zealand;
- ensuring franchisees are informed; and
- avoiding allegations of misrepresentation.
If you need assistance preparing a disclosure document for your franchise, contact our experienced franchise lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
A franchise is a way that businesses can grow their commercial activity into new locations or markets. A franchisor manages the overall company, while franchisees manage their local installations following the same business system.
A franchise disclosure document details important information about the state of a franchise. Potential franchisees may receive one when considering whether to purchase a franchise.
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