Choose a Company Structure Before Franchising in New Zealand

Before franchising your existing New Zealand business, decide which legal entity will become the franchisor. Simply putting your current trading company’s name on a franchise agreement may leave valuable assets, outlet liabilities and franchise obligations bundled together. A deliberate structure helps your franchise community understand who owns what, who receives payments and who is responsible for delivery.

1. Map the business you already own

Start with a factual ownership map, not a new company registration. Your trading name may be familiar to customers, but it does not establish which person or company owns each asset or holds each contract.

Record the legal owner or contracting party for:

• Your existing outlets, equipment, stock and leases.
• Trade marks, domain names, manuals and other business materials.
• Supplier contracts, software subscriptions and customer-facing systems.
• Employment agreements, loans and insurance policies.

Include anything held personally by the founder. For example, a domain name might be registered to you while the trading company pays for the website. Materials created by an external contractor may also need an ownership review.

Ask your lawyer and accountant to identify gaps before proposing transfers. Moving assets or contracts can require consent, have tax consequences or affect existing finance arrangements. A diagram alone does not change legal ownership.

2. Separate the roles before choosing the entities

There are three roles worth considering. They do not automatically require three companies, but distinguishing them makes the decision clearer.

The asset owner holds valuable intellectual property and potentially other assets. A separate holding company may help separate those assets from day-to-day trading exposure. However, it introduces administration and must grant the rights needed by the businesses using those assets.

The franchisor signs franchise agreements, receives franchise payments and owes the contractual obligations promised to franchisees. If this is a new company, it needs access to the brand, systems, people and funding necessary to perform that role.

The outlet operator runs company-owned premises or service operations. Your existing company might continue in this role, subject to professional advice and any restructuring required.

Compare keeping these roles together with separating them. Consider trading risks, administration costs, finance, tax and future ownership plans. More companies do not automatically mean better protection. Guarantees, security arrangements and the way companies actually operate can affect the intended separation.

The practical question is whether each entity has a clear purpose, suitable resources and properly documented relationships with the others.

3. Document the connections between companies

A separate franchisor cannot safely promise rights merely because its shareholder owns another company with those rights. The legal connections need to support the franchise agreement.

If one company owns the trade marks and another grants franchises, have your lawyer document an appropriate licence. It should address whether the franchisor can authorise franchisees to use the marks, how long those rights last and what happens if the arrangement ends. Align this with the rights promised to franchisees.

Likewise, record arrangements where the outlet company provides staff, training facilities or administrative services to the franchisor. Clarify responsibilities, payment terms and what happens if that service becomes unavailable.

Keep banking, invoicing and accounting records consistent with the structure. Franchisees should know which entity invoices them and why. Avoid casually moving receipts between group companies without accounting advice.

Finally, test a disruption scenario: if the original outlet closes, can the franchisor still access the systems and resources needed to fulfil its agreements? This exposes dependencies that an ownership chart can hide.

4. Check New Zealand law and launch documents

New Zealand has no franchise-specific legislation governing the ongoing franchise relationship, no statutory franchise disclosure regime and no government franchise registration requirement. Incorporating a company is not approval of its franchise offering.

General laws still apply. The Companies Act 1993 governs company obligations and directors’ duties. The Contract and Commercial Law Act 2017 is relevant to contractual dealings and remedies. The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations. The Commerce Act 1986 also applies to competition issues within franchise arrangements.

Be particularly careful when describing a newly incorporated franchisor. Do not present the existing outlet’s trading history or assets as belonging to that company if they do not. Explain the relationship accurately rather than implying that all group resources are available to meet its obligations.

Membership of the Franchise Association of New Zealand is voluntary, but its applicable codes bind members and include disclosure requirements. These are not a statutory registration system.

Before recruitment, have advisers check that the agreement, disclosure materials, invoices and ownership records consistently identify the correct entities.

Practical takeaway: Draw a one-page ownership and responsibility map, then have your lawyer and accountant test it together. Finalise the structure and supporting agreements before accepting your first franchisee’s commitment.