Licensing or Franchising Your New Zealand Business?

An established business can expand by letting others use its intellectual property, but not every licensing arrangement needs to replicate the whole business. Before recruiting operators, decide whether you are offering permission to use particular assets or a complete operating system. This distinction helps New Zealand business owners choose a workable model, budget for their responsibilities and explain the opportunity accurately.

1. Define what another operator will receive

A licence gives someone permission to use specified intellectual property on agreed terms. That might be a trade mark, a design or particular business know-how. A franchise generally combines licensed rights with a prescribed business system and ongoing assistance. Licensing is therefore part of franchising, rather than its opposite.

Start by writing down exactly what an operator would receive:

• Brand rights: which names, marks and other assets they can use.
• Operating requirements: which methods they must follow and where they have discretion.
• Assistance: what you will provide before opening and throughout the relationship.
• Commercial independence: which decisions remain theirs, such as the range of services offered outside the licensed activity.

For example, allowing an existing business to use a particular design differs from requiring an operator to trade under your brand, follow your operating procedures and receive continuing business support.

Neither description alone settles the legal position. The purpose of this exercise is to identify the substance of your proposed relationship before asking a lawyer to document it.

2. Understand New Zealand’s legal position

New Zealand has no dedicated franchise statute, no statutory definition of a franchise and no franchise-specific government registration process. There is also no universal statutory franchise disclosure regime. Calling an arrangement a licence, however, does not remove the general legal obligations that apply to commercial dealings.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct, unsubstantiated representations and unconscionable conduct in trade. Its unfair contract terms provisions may also be relevant. Contract law, competition law and intellectual property law apply, alongside other laws relevant to the arrangement, such as privacy, employment and real estate requirements.

For example, a claim that operators will receive a complete, proven business system needs support regardless of whether the contract is headed “licence agreement” or “franchise agreement”. The name cannot correct an inaccurate sales presentation.

Membership of the Franchise Association of New Zealand (FANZ) is voluntary, but its Code of Practice and Ethics imposes requirements on members. These include prescribed disclosure and contractual protections. Under the Code, disclosure must be supplied at least 14 days before signing a franchise agreement or becoming bound by a preliminary agreement to proceed.

The Code’s description of franchising includes brand rights, operation under a specified system and ongoing assistance. If you intend to join FANZ, ask a franchise lawyer how the proposed arrangement fits its requirements. The Code is not legislation applying automatically to everyone in New Zealand’s franchising community.

3. Test how much control the model needs

The central commercial question is whether your business can tolerate independent variation. A narrowly defined licence may suit an asset that another established operator can use within its own business. A franchise may be more suitable where customers expect a consistent, recognisable experience built around your complete model.

Use your existing operation to test that distinction. List the decisions that materially affect customer outcomes, then identify which must be standardised. Consider service delivery, presentation, equipment and the handling of problems.

Next, estimate the work needed to maintain those standards. If operators need regular coaching, system updates and troubleshooting, those responsibilities need people, time and funding. A short licence agreement does not make that workload disappear.

Equally, avoid imposing extensive business controls without considering whether they are necessary and lawful. Competition law can affect restrictions placed on independent operators. Have proposed controls reviewed rather than assuming ownership of the brand gives you unrestricted authority over another business.

4. Make the offer match the operating reality

Prepare a short model brief before commissioning agreements or advertising the opportunity. State the licensed assets, mandatory procedures, promised assistance, operator freedoms and activities that fall outside the arrangement.

Have a franchise-experienced lawyer review that brief alongside your intended recruitment language. Ask whether the contractual structure reflects the actual relationship, which general laws affect it and whether any membership obligations apply.

Then check the commercial proposition against delivery capacity. If you promise a complete system, it must exist. If you offer limited rights with limited support, prospective operators should understand those boundaries before committing. Avoid describing an incomplete franchise model as a simple licence merely to accelerate recruitment.

Practical takeaway: Choose the relationship before choosing its label. Map the rights, controls and assistance you genuinely intend to provide, then align the contract and recruitment message with that reality.