Skip to 0 minutes and 9 seconds Every country creates rules to regulate the way business is conducted. As well as registration and running of companies, these laws regulate taxation, property, employees’ rights, environmental protection, and many other things. Obviously, businesses contemplating expanding into a country need to know what will be legally required of them.
Skip to 0 minutes and 37 seconds Depending on the country, business regulations will be packaged in different ways. For example, countries where the common law prevails include Britain, Australia, New Zealand, Canada, Hong Kong, Singapore, and the US. Legal systems based on civil law exist in continental Europe, Vietnam, and Japan, for example. In countries like Brunei, customary or religious law can coexist with other legal systems. With international franchises, the franchisor’s country and the target country are quite likely to come from different legal traditions. Check out the expert video at the end of this module to find out more about this. Once you know the overall legal system in a country, it’s important to ask whether there are any laws specifically regulating franchising.
Skip to 1 minute and 31 seconds Some countries regulate franchising specifically, while others do this simply as part of the general commercial environment. For example, in Australia franchising is regulated through a mandatory code of conduct, which is a regulation under the Competition and Consumer Act. In Malaysia, there is a specific franchise act. In China a franchisor must have operated a business for two years before offering franchisees for sale, known as the “two plus one rule.” Toronto lawyer Paul Jones explains this in the expert video. In Germany, New Zealand, and the UK, franchising is regulated through broad commercial and consumer protection legislation. As there is no specific law governing franchising, franchise industry groups have created codes of conduct for their members.
Skip to 2 minutes and 27 seconds In some countries, franchisors need to register on a public registry. But in most countries there is no obligation to put franchise documents into a public database. Obviously, businesses contemplating expanding into a country need to know what will be legally required of them. Even where there are specific franchise laws, general laws, of course, still need to be obeyed. It is naive to expect a domestic lawyer to know the laws of other countries. However, international franchise lawyers belong to networks of lawyers from many countries, which can shortcut the search for suitable overseas advisers.
International franchise regulations
In this video Dr Jenny Buchan will address the important legal considerations when expanding into a foreign country.
Each country has its own approach to regulation of the franchise model. This may be through franchise-specific laws, general commercial laws or Codes of Conduct/ Ethics.
We will go into more detail on each of these:
Franchise-specific laws: Franchise-specific laws typically address pre-contractual disclosure, franchisor/franchisee relationships and registration requirements. Their main purpose is to protect franchisees from their own hasty decisions, and from being exploited by franchisors. In many cases franchise-specific laws are linked to consumer protection laws. Jurisdictions mandating the provision of pre-contractual disclosure from the franchisor to the franchise generally follow a similar format. The original American Uniform Franchise Offering Circular (UFOC), now known as the Franchise Disclosure Document (FDD) has influenced disclosure requirements in other countries. Categories of disclosure may include basic information about the franchisor, financial information including sign-on fees, ongoing fees and franchisor earnings claims, intellectual property registration and use rights information, real property requirements, details about the term of the franchise agreement, and information about termination and renewal.
General commercial laws (including competition/ anti-trust regulations): In some jurisdictions the franchise model is covered under the general commercial and competition laws. For example, in France, franchising activity is covered under the exclusivity or quasi-exclusivity provisions in the Loi Doubin (French Commercial Code). Provisions of competition laws that franchisors have to navigate very carefully include laws about third line forcing, tying, resale price maintenance and exclusivity.
Codes of conduct/ ethics: Codes of conduct/ ethics are either mandatory or voluntary. Where mandatory, they are incorporated into statute law as regulations. An example is the Australian Franchising Code of Conduct. Voluntary codes are often established by franchise associations. Codes state guiding principles for the relationship between the franchisors and franchisees. For example, in England there is no statutory mention of franchising. Franchisors must agree to comply with the British Franchise Association’s voluntary Code of Ethics as a condition of membership.
Below is a list of jurisdictions and the laws governing the franchise model.
Check if your country is listed. If not, see if you can locate any relevant legislation and post your findings in the comments section.
Although the end result is usually similar, each country creates its own unique mix of rules to regulate franchised activity. In addition to the approaches outlined in the previous activity, the general laws that are likely to apply in all jurisdictions include taxation, property, employment and environmental protection laws.
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