Update Your Disclosure Document Now. We suggest you start working on this task now, even if your current year financials are not yet finalised. If you act now you can also avoid spending money on auditing your marketing fund (see how below).
Background:
As a franchisor, the Franchising Code of Conduct (“Code”) requires you to update your Disclosure Document at least once a year – within 4 months of the end of each financial year.
This means that for most Australian based franchisors, you must complete your update between 1 July and 31 October of each year. After this date you cannot issue any new franchises until the updates are complete!
Always remember – franchisors cannot recruit franchisees without an up–to-date “current” Disclosure Document. It is therefore crucial to ensure that your Disclosure Document complies with the Code’s requirements.
The yearly update requires you to provide:
1. An updated Disclosure Document in the prescribed format (with new and/or updated information relating to all likely costs and expenses that may be incurred by franchisees, as well as information relating to changes within the franchise network, including any disputes that have occurred).
2. The franchisor’s financial statements for the last two completed financial years, or alternatively, an audit report from an independent auditor stating that the franchisor is solvent as of 30 June of the current year; and
3. An annual financial statement detailing all of the Marketing Fund’s receipts and expenses for the last financial year (Marketing Fund Statement).
Additionally, the Code requires franchisors to:
1. Arrange for the Marketing Fund Statement to be audited by a registered company auditor within 4 months after the end of the financial year (between 1 July and 31 October) to which it relates; and
2. Provide to their franchisees a copy of the Marketing Fund Statement, within 30 days of preparing it; and a copy of the audited report of the Marketing Fund Statement, within 30 days of preparing the report.
In addition, you should be aware that franchisors are able to be exempted from the requirement to audit their Marketing Fund Statement. Audits may be paid out of your marketing fund. However, they are very expensive and you could use the money annually allocated for these audits on further marketing campaigns. So how do I not pay for the marketing fund audit?
If 75% of your current franchisees who contribute to the marketing fund vote in favour that the franchisor does not have to comply with this requirement, you are then able to be exempted from this requirement. PLEASE NOTE – Franchisors may only rely on this exemption if the agreement is made within 3 months after the end of each financial year.
If you want to use the above exemption this year, please ensure that you discuss this with your franchisees as soon as possible. This way they can vote in favour of the agreement within the required timeframe, which is between 1 July and 30 September of each year.
Records of all votes should be recorded and stored for any later audit or review.
How Can Manookian Solicitors Help? Manookian Solicitors can assist you in all corporate and commercial legal matters including the following:
1. We can review and update your Disclosure Document;
2. We can re-draft your Disclosure Document to ensure full compliance with the current Code;
3. We can help you obtain the exemption above (with regard to the marketing fund), save money and boost the goodwill of your franchise; and
4. We can protect your franchise from breaching the Code.
Contact Rostom Manookian on 0416 716 960 or email rostom@manookiansolicitors.com to discuss updating your Disclosure Documents or other franchise related matters. We offer fixed fee services to ensure transparency and certainty to meet your requirements. We can provide legal advice in relation to franchise law, property, conveyancing, leasing, intellectual property, and other commercial and business related contractul matters.
Comments