Franchise Legislation in New Zealand
There are over 600 franchise systems running in New Zealand at present as per a study conducted by Massey University. But as far as a systematic law specific to franchising is concerned, New Zealand hasn’t set any yet. So, to simplify there is no legislation or law particularly for franchising in New Zealand which means franchisees and franchisors are governed by the same law as the commercial business legislation. Regardless of a set law, there are certain rules and guidelines that must be followed when thinking about franchising in New Zealand. The Franchising Code of Practice and Association’s Code of Ethics is a self-regulatory program which was introduced back in 2006 for the many franchisors and franchisees who did or will consider entering into a franchise form of business in New Zealand.
Franchising is a business agreement between two parties - a franchisor and a franchisee. It is the practice of benefitting from a firm’s successful business model. It is a way of marketing goods and services. A business owner in this scenario would be a franchisor who allows independent outlets to market and sell their products or services keeping the full rights of the idea, name and the process.
Franchise Association of New Zealand
Franchise Association of New Zealand also widely acknowledged as FANZ was established in 1996. This association came into existence to help franchisors and franchisees direct them by following the basic rules and guidelines of franchising. Franchise Association of New Zealand has more than 200 members in the association which includes both members in New Zealand and outside of the country. Before establishing FANZ, New Zealand was a part of the Australian Association. Franchisors and Franchisees who become members of FANZ are legally bound to adhere to Franchising Code of Practice set by the association. There are many franchisors and franchisees that are not a part of the association and naturally are not responsible to follow any guidelines set by FANZ. Franchise Association of New Zealand has four major ‘Code of Practice’ which they wish all their member should follow:
- Every member of the association should respect the association and provide reassurance to every new member who enters the association.
- To follow all basic guidelines and encourage best practice of the association
- To set an example for other members and demonstrate the positive aspects of franchising
- To share the basis of self-regulation
As loosely mentioned above, there is no such law or legislation set by the government that governs franchising independently. This is why FANZ took the initiative and set up a self-regulatory ‘Code of Practice’ to ensure franchising is done right. Many of ‘Franchising Code of Practice’ is similar to the ‘Australian Code of Practice’. Though, there are no laws abiding to franchising yet, experts understand that the time is not far when New Zealand will also have laws governing Franchising solely.
Franchise Procedure and Agreement
An agreement between a franchisor and franchisee is a legal documentation that should state all terms of agreement in the presence of their respective consultants or lawyers. The agreement may include the following points or more:
- The grant of franchise
- Any or all obligations for the franchisee and franchisor
- Terms of paying royalties
- Set procedure of marketing and promotion of the product or service
- Terms of termination
- Terms of Renewal
In case of foreign franchising, the franchisor must prepare proper documentation of the agreement and must also consult a New Zealand lawyer experienced in franchising. Apart from the basic agreement, taxation advice must also be obtained by an expert.
Since lawfully, franchise business dealing is governed by the standard law of commercial business in New Zealand, the law of taxation would be similar. But it is best that the franchisor and franchisee both consult an expert tax advisor to get maximum information about tax liability. Any foreign franchisor, who is a non-resident, is liable for tax; though New Zealand has tax treaties with many countries the best person to take advice from would be a professional tax consultant.
Any foreign franchisor who decides to enter New Zealand to franchise must thoroughly go through the Code of Practice and become a member of ‘Franchise Association of New Zealand’. The franchisor should have basic knowledge of franchising in New Zealand to carry on successfully. Some of these basic rules include:
- Franchisor must have his/her documents/agreement thoroughly read and approved by a lawyer based out of New Zealand
- He/she must also acquire tax information from a tax expert to avoid further confusions
- Franchisor must have a registered trademark and must have valid licence and other registrations done
Even though New Zealand is a relatively small country, the people have high awareness of self employment and the country has a very busy market in franchising business. Though it may seem that it would be easy to franchise in a small country like New Zealand, their vast knowledge and tremendous awareness about franchising makes it difficult for some incoming brands to crack the deal due to their lack of research. Franchising became prominent in New Zealand during 1990’s and today it is growing infinitely. So if you are looking forward to franchise in this country make sure to conduct a good research before you make a move.