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Franchising is a process where you can grow your business by providing resources to other businesses to emulate a commercial system like your own. In return, you gain compensation and other benefits. This article will explain what legal documents you need to start your New Zealand franchise to provide some background in this area.

Starting a Franchise

Starting a franchise is an extensive process and one that you should plan carefully. As the franchisor, you plan to grow your business extensively. You may do this in many different ways that will determine the nature of your franchise. Examples of how you franchise your business may include:

  • engaging franchisees or retailers to distribute your products;
  • establishing franchisee businesses modelled on your own throughout the country;
  • providing training and resources to ensure franchisee success;
  • allowing franchisees to use your intellectual property to promote your franchise’s products or services;
  • sharing your marketing and brand strategy across the franchise; and
  • providing business advisory support to your franchisees.

Key Legal Documents for Your Franchise

There is a lot to manage in this process. Further, the more franchisees you take on, the more businesses you have to account for. Therefore, drafting effective and robust documentation to manage these relationships is crucial. Some key documents include a:

  • franchise agreement;
  • franchise disclosure document; and 
  • franchise manual.

You may have other policies that provide rules for franchisee conduct, such as specific workplace and privacy policies. Notably, there is no specific law regulating franchising, but others will still apply to you, such as:

  • privacy law;
  • intellectual property law;
  • contract law; and
  • consumer law.

When drafting key legal documents for your franchise, you will need to keep these in mind. Therefore, the following paragraphs detail breakdowns of the documents listed above.

If you are a member of the Franchise Association of New Zealand (FANZ), there will be other documents that you need to provide, such as a code of conduct and a code of ethics.

Franchise Agreement

The most significant document to draft is your franchise agreement. This contract outlines the relationship between you (the franchisor) and your franchisees. It will also set out important rights and obligations of both parties and key contractual clauses that govern your business relationship. Some of these clauses include those concerning:

  • the time period of the relationship;
  • termination or cancellation conditions;
  • dispute resolution;
  • details of any cooling-off period;
  • franchising fees;
  • what support the franchisor provides the franchisee;
  • licensing and other intellectual property matters;
  • territorial matters; 
  • an exit plan; and
  • any other important matters.

Again, as a member of FANZ, there will be specific requirements as to what this document covers.

Every franchise agreement is different because you need to cater to your franchise’s needs and context.

Franchise Disclosure Document

As the franchisor, you give this document to the franchisee before they buy and update it annually. It outlines important information about the “health” of your franchise, such as:

  • its financials, like fees and cost structure;
  • your business experience as the franchisor;
  • a summary of your franchise system’s features and characteristics;
  • forecasts; and
  • projections.

Legally, you do not have to provide a disclosure document when setting up your franchise with new franchisees. However, there are numerous benefits to having one anyway, including:

  • providing clarity in your relationship with your trustees;
  • complying with the mandatory FANZ guidelines, if you are a member;
  • providing an element of credibility for attracting potential franchisees;
  • allowing your franchisees to make fully informed choices about whether they would join your franchise; and
  • reducing the potential for mistakes based on misunderstandings about your franchise down the line.

Crucially, since this document can contain important information about your franchise, you may also need to get prospective franchises to sign a confidentiality agreement.

Franchise Manual

Finally, another useful document to create is a franchise or operations manual. This document details the operating methods of your franchise system and requirements for franchisees. It informs franchisees of the core aspects of your franchise and what your expectations of them are for various procedures. These may include:

  • day to day operation;
  • branding requirements;
  • how a franchisee can run their systems;
  • details of suppliers and distributors;
  • marketing strategy;
  • training programmes;
  • health and safety policies; and
  • a privacy policy.

Generally, you want your franchise manual to serve as a model for franchisees to replicate your own business’ success. Therefore, this document can connect with your franchise agreement and even form a part of it.

Key Takeaways

Starting a franchise is an intensive process that requires robust organisation. As the franchisor, you need to effectively manage your relations with your franchisees. Having efficient contracts and other key franchise documentation can help with that. If you need help with your franchise’s legal documents, our experienced franchise lawyers can assist 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

What is a franchise?

A franchise is a business model that you can use to grow your business. You (the franchisor) allow other parties (the franchisees) to replicate your business model to create their own success. In return, your brand grows and you receive various fees or royalties.

What legal documents do I need to start a franchise?

There are various documents that you may need to start a franchise. Three key examples include a franchise agreement, a franchise disclosure agreement, and a franchise or operations manual.

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