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If you are a successful business owner who wants to grow your business, you should consider franchising. Franchising is a business structure in which one party (‘the franchisor’) allows another party (‘the franchisee’) to use their business model in exchange for periodic franchise fees. It is a popular business structure in New Zealand because it allows business owners to grow without having to provide their own labour and capital. This article will outline a few legal tips that you should consider as a New Zealand franchisor.

Set Up a Company

Setting up a company is the best way to protect yourself and your assets. This is because you have limited liability compared to a sole trader or partnership. If your business becomes insolvent, your personal assets are protected. There are also tax benefits to owning a company, as the company tax rate is lower than top personal tax rates. 

The business can also grow further if you decide that you do not want the business anymore or you want to pass it down to a family member. It can be difficult to pass down a partnership or a sole trader business structure to somebody. Another benefit of setting up a company is that it becomes easier to sell the business as it is a separate entity and has more credibility in the market. 

Join the Franchise Association of New Zealand

The Franchise Association of New Zealand (FANZ) is the peak body for franchising in New Zealand. It is a good idea to join FANZ as you can leverage their resources and connect with other members of the franchising community.

All members of FANZ are subject to their code of conduct which includes a dispute resolution clause. This means that if a dispute were to arise with a franchisee, dispute resolution practice would have to be used. Dispute resolution is beneficial for both parties as it is much quicker and less costly than going down the court process. If dispute resolution were to fail, however, then the court proceedings may be filed. You will also have more credibility amongst the franchise community if you join FANZ. This is important if you ever decide to sell your franchise or buy another franchise. 

Provide All of the Relevant Documentation

Even though there is no franchise-specific legislation in New Zealand, it is still important that you provide all the relevant documentation. This is to ensure a smooth running of your franchise and to safeguard in the event that a dispute arises. The specific documentation that you should provide is:

Document

Description

Franchise Agreement

This is the legal document that outlines your relationship with your franchisee. It should include information about:

  • length of the franchise;
  • franchise payments;
  • exit plan; and
  • termination clause;

Franchise Disclosure Document

This document is provided to the franchisee before they buy the franchise as well as annually. It outlines the financials of the franchise and paints a picture as to the ‘health’ of the franchise. It may also include forecasts and projections.

Franchise Manual

This document is provided to the franchisee to give them the structure of the business. It will outline suppliers, distributors and how products should be marketed. It will also provide the full business plan of the franchise.

FANZ Code of Practice

If you are a member of FANZ, then you are also obliged to provide your franchisee with a copy of their code of conduct. This will outline the obligations you have to franchisee and the process that must be followed if there is a dispute.

This is not a full list of franchise documents, but it includes the main ones. You should make sure that you are following any legal obligations.

Key Takeaways

Franchising is a good way to expand your business and it is used by many businesses across New Zealand. If you are a franchisor, you should consider the legal tips outlined in this article. Even though there is no legislation in New Zealand that specifically targets franchising, it is still important that you are following your legal obligations, making it easier if a legal dispute were to arise. Setting up a company is the best way to protect your assets and structure to your franchise in a way that helps in selling or passing down your business. Joining the Franchise Association of New Zealand is also a good way to engage their dispute resolution services so that you do not need to go down the court process. Additionally, there is a list of franchise documentation that you should provide to stay legally compliant. These include:

  • a franchise agreement;
  • a franchise disclosure document;
  • the FANZ code of practice; and
  • a franchise manual.

If you need legal assistance with franchising your business or with your franchise legal documents, contact LegalVision’s franchise lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I have to join FANZ?

Joining FANZ is legally not a requirement, but it is recommended due to the benefits mentioned above.

Can I set up a franchise as a sole trader?

Yes, you can but beware that you will have unlimited liability. This means your personal assets can be taken if your business becomes insolvent.

Which franchise document is the most important?

The franchise agreement is the most important document as it will outline your rights and obligations.

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