Franchisor Disclosure Document Update

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Franchisor Disclosure Document Update.

Time Limits Apply – Updating your Disclosure Document and Financial Reports.

We are already well into the new 2016/17 financial year and for Franchisors that means getting organised to:

  1. Have their accountant prepare their financial reports for the 2015/2016 financial year; and
  1. Update their standard disclosure document, which requires a thorough and careful review to ensure all information is accurate and up to date. There is no substitute for reading through every clause to see what needs updating or amending due to changes to make sure your Disclosure is correct. Remember also that your Disclosure Document must be accurate as at the date of a franchisee entering into the franchise agreement, so if there is a significant time gap between the date of issue of the Disclosure Document and the date that the franchisee signs the franchise agreement, then you may need to consider reissuing the Disclosure Document and draft franchise agreement.

Note that these matters must be attended to by 31 October each year – being 4 months after the end of the financial year as per the Franchising Code of Conduct requirements.

The Franchisor must include the last two financial year’s reports in its Disclosure Document or alternatively an independent audit report by a registered company auditor.  So, as a Franchisor you need to make sure you have your books in order so that you can instruct your accountant as soon as possible after the end of the financial year to carry out the required accounting work.  Failure to update a disclosure document is now a civil penalty under the Franchising Code of Conduct which may result in a fine or an infringement notice.

Franchisors should also ensure they comply with their obligations to report in respect of advertising and marketing funds.  The same time frames apply.  The Franchising Code of Conduct also provides that unless 75% of Franchisee’s who contribute to the fund agree, the Fund must be audited by a registered company auditor.  That agreement by the Franchisees must be made within 3 months after the end of the financial year, so timing of the vote is key.

So – act now so you can meet the necessary time frames to avoid penalties for non-compliance.

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The content published in this Blog is in the form of academic papers and the opinions expressed herein are generalised. The information provided is for educational purposes, not specific legal advice.

The application of any principles referred to can alter from case to case and accordingly you should seek independent legal advice in respect of your individual circumstances.


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