Table of Contents
Complete Guide on Franchise Agreement
Individuals wishing to commence their own business have realized the consequences of building a brand from scratch and the dedication of time as well as the capital which is lost in the process. This is one of the primary reasons why business owners have started to turn towards the Franchise model. The Franchise model offers individuals to use the brand name and the base product of an established brand with the discussed terms and conditions mentioned and decided in the Franchise Agreement. The Franchise Agreement and its content play a vital role in the acquirement of a brand’s Franchise.
What is a Franchise Agreement?
The Franchise Agreement is the foremost legal agreement that binds the Franchisor or the owner of the brand and an interested candidate who is also called as a Franchisee. The Franchise Agreement mentions all the basic terms and conditions, the eligibility criterions that have to be fulfilled by the Franchisee to acquire the brand name of the company and run the business. It mentions all the aspects such as Royalty fees, the term of the agreement, the extent of the contract, penalties, and even conditions under which the Franchise will be withdrawn.
Content of a Franchise Agreement
Upon comprehending the purpose and the meaning of a Franchise Agreement, it is crucial to understand the contents of an agreement. How the agreement is formed? What are the different aspects that are covered in an Agreement? The contents or the guidelines of a Franchise agreement are mentioned as follows.
1. Location of the Franchise
This aspect is with regard to the territory or the boundaries of a Franchise unit and where it can operate. It also mentions all the exclusive rights that are available to the Franchisee and the Franchisee is bound to operate as per the terms mentioned in this aspect.
2. Area and Site Selection
This aspect mentions about the minimum area that is required to start the Franchise unit and it also mentions the location of the site. It talks specifically about the preferred area, such as market, high-street market, malls, etc.
As you may have guessed, in this aspect, the agreement specifies the fixed percentage of royalties that has to be paid by the Franchisee to the Franchisor on a monthly basis. The structure of royalty would differ from brand to brand. Royalties are generally determined from the unit’s total monthly sale.
4. Franchise Validity
This entitles the period of time till which the Franchisee is allowed to use the brand name and use its credibility as a trademark to scale their business. Generally, most of the Franchise term or Franchise validity ranges between 1 to 5 years. Once the validity has expired, the Franchisee may contact with the representatives of the brand and have the term extended by paying the fees.
This is one of the crucial aspects of the Franchise agreement and the one which has to be carefully discussed and negotiated by the Franchisee. As the name suggests, it talks about the brand fees or the Franchise fee which has to be incurred by the Franchisee to take benefit of the brand name.
6. Training and Support
This provision talks about all the various details with regard to the required training and support to the Franchisee. The staff of the Franchisee is trained for free or for a fee as mentioned in the provision. All the additional support provided by the brand is also as per this provision.
7. Operations One of the major contributing factors in a company’s brand value is the way they operate. Hence, every Franchisee is expected to follow certain codes of conduct to ensure that the business is operated as per the standards of the brand. This aspect has to be thoroughly followed by the brand.
8. Advertisement and Trademark
This section details about all the advertisement support that would be provided to you by the brand. It also talks about the extent and standards through which you can advertise the brand’s name. The Franchisee also becomes responsible for helping the brand promote itself. The Trademark section speaks about the rights and restrictions of the Franchisee to use the IP of the brand.
Benefits of a Franchise Agreement
By a glance at all the contents of a Franchise agreement, we can clearly understand why it plays an important role while acquiring a Franchise. The various other benefits that are derived from making a Franchise Agreement are mentioned as follows.
1. Brand Value
One of the factors which makes every Franchisor worry about his business while permitting a Franchise unit is his/her company’s brand value. The brand value of a company is built through their own unique methods and the way they offer their services or serve their customers. A Franchise Agreement helps the Franchisee to understand and follow the guidelines that mention about how daily operations should be carried.
2. Do’s and Don’ts
Sometimes it becomes evident for a Franchisor to mention all the boundaries and the benefits that a Franchisor has while using the IP of the brand. A well-drafted Franchise Agreement ensures that all the restrictions and all the powers that a Franchisee has access to is listed and detailed properly in the agreement. This also helps the Franchisor to legally bind and have the Franchisee legally agree to his/her terms and conditions.
3. Other Benefits
The Franchise Agreement also provides for various other types of benefits which can be utilized by both the parties, i.e., the Franchisor and the Franchisee. It also mentions about any cancellation or refund policies which again helps and works in the favour of both the parties. It also mentions about the cancellation or the renewal process which has to be followed to honour both the parties.
A Franchise Agreement is a legal document that binds the Franchisor and also the Franchisee. The contents of a Franchise Agreement include aspects such as Fees, Royalty, Area selection, location, advertisement and trademark, operations, Franchise validity, and training & support.
1. When do you need a Franchise Agreement?
Ans. In the process of acquiring a Franchise, the first step is to discuss and sign the Franchise Agreement.
2. Who drafts the Franchise Agreement? The Franchisor or the Franchisee?
Ans. It is usually the responsibility of the Franchisor to draft the Franchise Agreement
3. Does the Franchise Agreement also mention about Exit Strategies?
Ans. It depends on the Franchisor to mention about the Exit strategies in a Franchise Agreement.