WHAT ARE MY LEGAL LIABILITIES?

As a franchisee you will be a business owner, and that means there are laws you’ll need to follow.

The laws you’ll need to follow as a franchisee.

You might think that by buying into a franchise system, most of the legal responsibility rests with the franchisor. While it’s true that the franchisor must manage risk at a higher scale – such as in terms of its intellectual property and more onerous legal requirements – owning a franchise is like owning any other business, and comes with its own unique risks and liabilities.

BUSINESS RISKS

When you buy into a franchise, you must still consider your normal obligations at law as a business owner.

This includes complying with your tax obligations, such as registering for GST and PAYG, as well as your obligations as an employer.

Employment laws can be complex to navigate and it’s important that you understand your employees’

entitlements and your obligations to provide a safe workplace. While your franchisor might assist you in complying with these, it’s ultimately your responsibility and one that should be taken seriously.

The consequences of not complying with your obligations as a business owner can be significant. In addition to potential penalties under law, you may also put your franchise agreement, and therefore business, in jeopardy.

OBL IGAT IONS UNDER YOUR

F R A NCHISE AGREEMEN T

However, unlike other businesses, being a franchise owner has an added layer of liability in that you must also comply with your franchise agreement.

Franchise agreements are incredibly lengthy documents, and the importance of knowing your obligations under this cannot be understated. Your franchise agreement will typically set out your responsibilities with respect to: • purchasing of goods or services

The consequences of not complying with your obligations as a business owner can be significant. In addition to potential penalties under law, you may also put your franchise agreement, and therefore business, in

jeopardy.

through approved suppliers

• local area marketing

• payment of fees to the franchisor • use of intellectual property • confidential information.

As your franchise agreement is a contractually binding document, failure to comply with its terms may entitle the franchisor to issue a breach notice and, in some cases, terminate the franchise agreement. Termination should be avoided at all costs, as it will often mean that you can’t recoup your investment and may walk away with ver y little.

Conducting due diligence, obtaining professional advice from an experienced franchise advisor, and reading the franchise agreement itself will all help in mitigating your risks as a franchisee.

GUAR ANTEES

You should also be aware of any personal guarantees you have provided, whether under the franchise agreement or any finance agreements (such as bank loans).

Personal guarantees are commonly required in franchises, as it provides security to the franchisor or lender in the event that your corporate entity does not meet its contractual obligations. What this means is that the secured party can pursue you in your individual capacity and seize any assets you own (like your house or car) to recover unpaid money.

Obviously personal guarantees naturally involve some risk, so it’s a good idea to review and discuss your asset protection strategies with your lawyer and accountant before buying into a franchise.

L E A S E OBL IG AT ION S

If you operate your franchise from a fixed premises, you also need to be mindful of your obligations under the lease and/or occupancy licence agreement.

The most obvious obligation under these agreements is for the payment of rent. As well as this, there will also be specific requirements relating to fitout both by the landlord and your franchisor. As fitout usually involves the outlay of significant expense, it’s important that you know what’s expected of you both initially as well as to upgrade the fitout at a later date.

Landlords will also often require personal guarantees, so again, it’s prudent to get advice on your obligations both as a tenant as well as in your personal capacity.

There’s a lot to consider when buying a franchise in addition to your usual liabilities as a business owner. Seeking advice from a lawyer and accountant with particular expertise in franchising will help you understand your obligations and lessen your risk. And remember – you’re in business for yourself but not by yourself, so be sure to ask your franchisor for help when needed, too. Marianne Marchesi is the award-winning founder and principal of law firm Legalite.