Franchisor

What it means

The franchisor develops and owns the trade marks, operating system and marketing plan that define the network. Under the Australian Franchising Code of Conduct, an arrangement is only a franchise where the franchisor substantially determines, controls or suggests the system, the business is associated with the franchisor's brand, and the franchisee must pay the franchisor an amount.

The franchisor sets the rules franchisees operate under, supplies training and support, and controls how the brand is presented. In exchange it typically earns upfront fees, ongoing royalties and, in many systems, a marketing levy that funds shared advertising.

The franchisor also carries specific legal duties. It must give prospective franchisees a disclosure document, a copy of the Code and the agreement, act in good faith, and comply with cooling-off and dispute-resolution rules. Being a franchisor is therefore both a commercial and a compliance role.

In practice

When you assess a brand, you are really assessing the franchisor: its financial stability, the quality of its systems and support, and how it has treated existing franchisees. The disclosure document is the franchisor's own account of these things and is the starting point for any serious review.

A strong franchisor grows the network sustainably, invests in franchisee profitability, and communicates openly. Warning signs include high churn, frequent litigation, thin support, or a system that earns more from selling new franchises than from franchisees trading well.

A real example

A cafe chain's head office owns the brand, recipes, fit-out design and supplier agreements, and licenses each cafe operator to trade under the name for an initial fee plus a 7% royalty on sales. That head office is the franchisor; it must disclose its finances, litigation history and network figures before any operator signs.

Franchisor — FAQs