If you’re a franchisor who controls or manages a marketing fund, it’s crucial to stay on top of your obligations under the Franchising Code of Conduct (the ‘Code’). Compliance isn’t just about avoiding penalties—it’s about maintaining transparency and trust with your franchisees. Here’s a rundown of your key responsibilities and how MST Lawyers can help.
What is a Marketing Fund?
A marketing fund is a pool of financial contributions from franchisees (and the franchisor, where applicable) used to promote the franchise network. These funds must be managed carefully, as they come with legal obligations under the Code.
Key obligations under the Code:
- Annual Financial Statement – Clause 15(2)(a)
By law, franchisors must prepare an annual financial statement detailing the fund’s income and expenses for the last financial year. This statement should be ready within four months after the financial year ends and must include ‘meaningful information’—like the sources of income, types of marketing services, timeframes, and details of specific campaigns. If you’re unsure what counts as ‘meaningful information,’ you can refer to our article on the 2019 Ultra Tune case, where the courts clarified this point. - Auditing the Financial Statement – Clause 15(2)(c)
The financial statement must be audited by a registered company auditor within the same four-month timeframe. This audit adds another layer of transparency, ensuring franchisees have confidence in how their contributions are being used. - Providing Financial Information to Franchisees – Clause 15(4)
Franchisors must provide their franchisees with:- A copy of the financial statement within 30 days of its preparation
- A copy of the auditor’s report within 30 days of receiving it
However, the audit requirement can be waived if:
- 75% of the contributing franchisees vote to bypass the audit within three months of the financial year-end.
- This vote applies only for that year and must be retaken annually.
For franchisors with a financial year ending on June 30, you have until September 30, 2024, to conduct this vote if you wish to waive the audit requirement.
Additional marketing fund obligations:
Franchisors must also:
- Maintain a separate bank account for the marketing fund.
- Disclose the total marketing fund expenditure in the annual update of the Disclosure Document.
- Contribute to the fund on the same basis as other franchisees if the franchisor operates any unit franchises.
- Ensure marketing funds are only used for legitimate marketing expenses disclosed in the Disclosure Document or approved by a majority of franchisees.
Failure to comply with these requirements can result in civil penalties under the Code.
How MST Lawyers can help:
The ACCC continues to monitor and take action against franchisors who fail to meet these obligations. To avoid penalties and protect your franchise network’s reputation, it’s essential to ensure full compliance.
If you have any questions about your marketing fund obligations or need help with compliance, our Franchise Lawyers is here to assist you. Contact us today:
Raynia Theodore: raynia.theodore@mst.com.au
Louise Wolf: louise.wolf@mst.com.au
Esther Gutnick: esther.gutnick@mst.com.au
Stay compliant and maintain the trust of your franchisees—reach out to MST Lawyers for expert guidance.
