5 Biggest Mistakes First-Time Franchisors Make

by | Feb 8, 2023 | Business Sellers & Purchasers, Commercial Clients, Franchisors, Start-Up & Expanding Businesses, Tradie Businesses

As Franchise and Business Lawyers, we see the same mistakes made by Franchisors time and time again, and most (if not all) of them are easily avoidable had they been proactive about their business legals.

Here are some of the common mistakes that need to be addressed before they become costly mistakes:

1. They don’t have the best possible structure

A well-structured franchise system has a number of group companies, which are separate legal entities established for each separate area of the business giving a level of protection and asset protection for each entity. One corporate structure we recommend setting up is a structure that includes a holding company and the following subsidiaries:

An ‘IP entity’ that holds the business’ trade marks and other intellectual property;
An ‘Operating entity’ (to be the Franchisor); and
‘Leasing entities’ (to hold the leases).

Why do we bother about your structure?

You should ensure that the business’ key assets (namely trade marks and other intellectual property) are separate from the operational and franchising arms of the business. This reduces the risk of losing valuable assets in any litigation.

2. They haven’t updated their documents

As a Franchisor, it is important you know that your documents are compliant and up to date.

Your disclosure document has to be kept up to date but, on top of that, you need to be all over the changes in legalisation. A number of changes to the Franchising Code of Conduct (the Code) came into effect 1 July 2021 or before and these need to have been reflected in your current documents and procedures.

3. They haven’t properly protected their Intellectual Property

A Franchisor should have a number of registered trademarks. Some simply do not have enough.

The only way to stop someone else using a business name or logo that is the same as yours is through registering a trademark. This is a key element of a franchise arrangement.

You should have your brand name registered in all relevant classes as well as your logo(s) and all unique catch phrases.

Intellectual Property
Commercial Lease

4. They have no leasing strategy

Without a well-structured leasing strategy in place you may find yourself unable to exit from certain States/Territories or leases, or with serious problems with a Lessor on one lease which could result in litigation which may:

Have a ripple effect to ALL other leases with the same Lessor;
Affect the reputation of the company in the leasing industry; and
Result in liquidation putting ALL other lease assets in the company at risk affecting ALL business operated by the franchise entity and by franchisees.

5. They have not considered their other business legals

Often franchisors put all their attention into their franchise documents, hiring a law firm to help with their franchise grants but ignoring the other aspects of their legal risks. Careful consideration also needs to be given to other areas of the business such as their Privacy Policy, Terms & Conditions, Supply & Manufacturing Agreements, Commercial Leases, Employment and Consultancy Agreements.

The beauty of engaging a firm like Rise Legal is that we are well versed in business contracts and protection as well as franchise law. We look at the bigger picture!

Business Legals

Rise Legal can assist you with setting up your business franchise model ensuring you have a legal safety net around you and to ensure you are setup for success from the outset.

To get started, book in for a free 15-minute consultation with one of our lawyers.

Related article: Franchise Super Penalties – What you need to know

Helen Kay - Managing Director

Helen Kay

If you require any assistance with your business legals or any other commercial legal issue, please do not hesitate to contact me.

Typical Legal Disclaimer!…

Unfortunately, there is never a ‘one size fits all’ formula to apply. Every situation is unique and it can be tricky to wrap your head around some areas of the law. To ensure you are setting yourself and your business up for success, it is always best to consult a legal professional with expertise in the field.

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