Franchisors have to operate their businesses within a complex,
ever growing regulatory environment. We realise that it is not
always easy to keep up to date with the law, and sometimes the
fundamentals get overlooked. In each edition of Franchising Focus
we give our Top Tips to remind our franchisor clients of the
fundamentals and to give you some practical guidance based on our
This month's Hot Tips for Franchisors relates to proper
execution of the Franchise Agreement. Here are some formalities
that are sometimes overlooked:
Only legal entities have the capacity to enter into agreements
or contracts, assume obligations, incur debts, be sued and be held
responsible for their actions. Common legal entities include
private companies, individuals/sole traders, partnerships and
trusts. A business name or trading name is not a legal entity and
cannot enter in a contract, including a franchise agreement.
If the franchisee is a corporate entity, you should (at the
very least) conduct searches of the ASIC company register to check
registration status, the ACN and ABN, who are the appointed
directors and shareholders, the registered address and business
address, whether there are any charges registered over the assets
of the entity, and that all required documents (for example annual
returns) have been filed with ASIC. We often see franchise
agreements that have been signed by a non-legal entity - this could
have been avoided if simple checks had been made.
If the franchisee is a trustee of a trust, you should check
that the trust deed contains sufficient powers to enable the
franchisee to conduct the franchised business and perform its
obligations under the franchise agreement.
Where a person signs a franchise agreement in their personal
capacity (for example where the franchisee is a sole trader, or the
person is signing as guarantor) his/her execution should be
undertaken in the presence of an independent witness. The witness
must be an adult person who is not a party to the franchise
agreement. We sometimes see cases where directors of the franchisee
company witness each others signatures when they sign in their
personal capacity as guarantor - this may create issues with
enforcement of the guarantee in the future. It is prudent to check
that each witness is an independent person (for example the
person's solicitor or accountant).
A franchise agreement does not need not be dated to be valid
and enforceable. However failure to date the franchise agreement
can create problems when determining the commencement of the
agreement, and in particular the commencement of the term. Dating
also helps to identify the franchise agreement years later and puts
the agreement into chronological context. You should not predate a
franchise agreement - it should be dated the date that it is
executed. If the franchise agreement is be effective retroactively
then the franchise agreement should include a clause that provides
that the commencement date for the agreement is the nominated
Any last minute amendments to the franchise agreement that are
made by hand should be initialled by both parties to the contract.
This will avoid issues in the future as to whether the amendment
was unilaterally made, or whether it was an agreed amendment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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