As a prospective franchise buyer, there are a number of things that you need to focus on. While all the paperwork may make the process seem very tedious and time-consuming, each of these documents has a specific purpose.
Here we give you an easy checklist of documents you may have to sign when purchasing a franchise:
This is generally one of the first documents to be signed; the franchisor uses it to assess prospective franchisees. It might accompany or include a confidentiality agreement to help ensure that you keep all the information regarding the system and the franchise negotiations confidential. The franchisor should also send you the Statement of Prospective Franchisee document.
If you’re buying an existing business from any corporate-run store or even a current franchisee, the seller is required to sign a formal business sale contract. This doesn’t apply when a new franchise is granted by the franchisor. The conditions laid out in these business sale contracts are vital and you should make it a point to discuss these with your lawyer before signing on anything.
If your franchise application is approved by the franchisor, you will then be handed a disclosure document, have to sign the receipt on its final page and return it to the franchisor. It’s just a receipt and you aren’t bound to anything by simply signing it.
This includes the terms that have been agreed for granting the franchise; it also includes the obligations of the franchisor and franchisee throughout the term. The former would have to sign this before the commencement of operations; in some cases, they may also want it signed well before training begins.
As part of section 10 of the Code, you are required to sign a statement that states:
Most franchise systems require their franchisees to sign the prior representations ‘statement’ or ‘deed’. In some instances, this is included in the franchise agreement. It prompts you to answer a variety of questions related to statements or promises made by the franchisor that you have relied on in order to enter into that franchise. This is crucial because if a particular statement isn’t included, it will be extremely difficult to bring it up and rely on it at a later date.
Sometimes there are ancillary or side agreements covering matters that haven’t been set out in your franchise agreement. These agreements may also be between you and a third party. For instance, if your franchisor requires that you use a certain software system, there could be software licence agreement between you and the software’s owner.
If you are operating from a fixed location, unless you own the land, you would have to sign a document to gives you the right to occupy that specific premises. At times, the franchisor holds the lease in their name or in the name of any related entity; they licence the occupation of that premises to you. In this case, you will need to sign a licence to occupy that space.
There are other documents that may come into the picture as well and your franchisor would be able to provide you information on what is needed. If you want to know anything more about setting up a franchise business or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435