The updated Franchising Code of Conduct came into effect in April 2025. The New Code largely maintain the previous provisions concerning management and use of marketing funds, which are now termed ‘specific purpose funds’ for the purpose of the Code. These rules sit under section 61 of the New Code.
What Is a Specific Purpose Fund?
A specific purpose fund is any fund franchisees must pay into for a stated purpose. This often includes marketing, advertising, or network-wide projects like branding or tech upgrades.
Franchisors Must Also Contribute
If a franchisor or master franchisor also runs units within the network, they must contribute to the fund on the same basis as franchisees. This ensures fairness and consistency. They can’t benefit from the fund without paying their share. Failing to contribute can attract civil penalties of up to 600 penalty units.
Funds Must Be Held Separately
The fund must be kept in a separate account with a recognised financial institution. This keeps it transparent and separate from general business funds. Co-mingling is not permitted. A breach also carries a penalty of up to 600 units.
What Can the Fund Be Spent On?
Spending is tightly controlled. The franchisor (or whoever administers the fund) can only use it to:
-
cover expenses that were disclosed in the disclosure document under paragraph 15(1)
-
meet legitimate costs aligned with the fund’s stated purpose
-
pay for costs agreed to by a majority of contributing franchisees; or
-
cover reasonable admin or audit costs for the fund
Franchisors must also disclose under item 15.1(e) of the disclosure document the kinds of expenses the fund may be used to meet. General or vague descriptions won’t cut it. Franchisees need to know where their money is likely to go, and franchisors must stay within those parameters unless they get majority consent.
Good Faith Still Applies
Even if franchisors follow the letter of the rules, they must still act in good faith. That obligation under the Code applies across all dealings, including marketing fund administration. If franchisors use the fund in a way that is misleading, one-sided or inconsistent with network interests, they may still breach their duty, even if technically compliant.
What About Digital Marketing?
The Code doesn’t prevent franchisors from using the fund for digital spend. In fact, things like social media, SEO, website costs, and digital ads are often legitimate marketing expenses. But they must benefit the network as a whole.
For example, if SEO campaigns use location-specific terms like “electrician in Perth,” those benefits must be shared across the system, not directed toward franchisor-owned units or selected franchisees.
The same applies to Meta or Google ad spend, email marketing tools, or social media boosting. The spend must be disclosed, appropriate for the fund’s purpose, and fairly distributed.
Final Thoughts
When it comes to applying marketing funds, the Code calls for transparency to protect franchisees. For franchisors, they raise the bar on governance and disclosure. If you need help checking your marketing fund compliance, reviewing disclosures, or navigating your obligations, Magnolia Legal can assist.