BASIC FRANCHISE AGREEMENT SAMPLE

For any business wishing to sell its franchise and for any businessperson willing

to start a business by owning a franchise for a brand, it is very important to

satisfy all legal requirements to avoid any kind of nuisance and havoc in the

future. Of all the legal documents, FRANCHISE AGREEMENT is the most basic

document because it is the document which states that the franchisor and the

franchisee have got into a contract. It consists of all details such as the

expectation of the franchisor, your operation method, etc. that are mutually

agreed between the franchisor and the franchise. A franchise agreement can

be defined as:

“A legal binding contract between a franchisor and a franchisee which

outlines the franchisor’s terms and conditions for a franchisee.”

If you want to take ownership as a franchise as a franchisee, it is necessary to

sign a franchise agreement because it is a legally binding contract between the

parties to a franchise relationship. In legal terms, a franchise agreement is a

license provided by the franchisor to a franchisee. It simply means that the

franchisor permits the franchisee to use the franchisor’s brand name as his

business’s brand name. Agreeing to the franchise agreement document

means:

❖ The franchisor licenses the franchisee the right to use the franchisor’s

intellectual property, systems, and brand.

❖ The franchisee acquires the right to open a business using the

franchisor’s intellectual property, systems, and brand, provided it meets

certain conditions.

A Franchise agreement draft consists of the following points:

1. Franchisor- franchisee relationship- The relationship between the

franchisor and the franchisee is the major component of a franchise

agreement. These are the two parties that are bonded in the contract

and the obligation to operate the brand standards is disclosed in the

agreement

2. Agreement duration – The duration of the franchisor-franchisee

a relationship is mentioned in the franchise agreement document. In

general, the tenure of the agreement of relationship between the

franchisor and the franchisee is for 5 to 10 years. The tenure of the

relationship is one of the most crucial aspects of the agreement. This can

be extended in case the franchisor and the franchisee agree to stay and

work together.

3. Scale of operations- The methods and scale of operations have to be

clearly mentioned in the franchise agreement sample before a fair draft

is prepared. It is extremely important to include a piece of elaborate

information about the level of support that the franchisor will provide.

Various operations like procurement of goods or services, account

management, etc. have to be mentioned under this agreement. The

franchisee carries out its work as per the details mentioned in the

franchise agreement.

4. Franchise fee- In a franchise agreement, the amount that the franchise

has to pay is also mentioned. Franchisees generally have to pay an initial

amount when they are joining the franchise system. There are several

other charges that are charged by the franchisor and all of those have to

be articulated in the agreement. The initial fees are the amount that the

franchisee pays to the franchisor to take his brand name, logo, and another identity of the brand that the franchisee can use.

5. Use of intellectual property- Intellectual property includes trademarks,

patents and manuals are valuable assets for every business. When

one buys the franchise of a particular brand, he gets access to some of

the intellectual properties of the brand. The franchise agreement clearly

mentions what is licensed to a franchisee and which all intellectual

properties can be used by a franchisee.

6. Training and support- Most of the franchisors provide proper training

to anybody wishing to take up the franchise of their brand in order to

ensure a uniform functioning of all the franchises owned by that brand.

These are generally provided before the opening up of the franchise and

during business setup. All the training schedules are mentioned in the

franchise agreement.

7. Site selection and Development- It is very important that an analysis of

the market is made before setting up a franchise store so that a location

with the minimum competition can be chosen. It is one of the biggest

responsibilities of the franchisee to find the perfect location and take 

approval from the franchisor before setting up the franchise. Each and

every specification about the location needs to be penned down in the

franchise agreement so that it becomes an official franchise unit of the

brand.

8. Advertising and brand promotion- Franchisors invest a large part of

their finances and resources in the promotion of their brand. Therefore, it is

necessary that the franchisees contribute to brand-building activities.

These have to be clearly mentioned in the franchise agreement as it is a

part of the expenditure and goodwill creation for the brand.

9. Assignment of franchise description- Most franchise agreements

require the franchisee to obtain approval from the franchisor for the

transfer or assignment of interest in the franchise unit. In addition to

this, there can be clauses providing the franchisor with rights of refusal

to take over the franchise in case the franchisor would want to transfer

the ownership.

10. Governing law and dispute resolution- It is always good to mention the

governing laws and jurisdiction for the proper functioning of the franchise

agreement. It is best to agree on an alternate dispute resolution method

such as arbitration, conciliation or mediation, in case of dispute to

ensure speedy and cost-effective resolution of any kind of dispute that

takes place. It is always important to solve any disputes mutually rather

than going to court.

Every franchise agreement is different. Depending upon the type and mutual

agreement of the franchise and the franchisor, the terms of the franchise may

change but the components of the franchise remain the same because they

are the general ground of agreement. After the initial term of the franchise

agreement expires, you generally have the option to renew the franchise

agreement contract. Renewal depends on the mutual agreement of the

franchisor and franchisee and it gives them an opportunity to review the

clauses of a relationship.

There are several franchise agreement sample pdfs that are available that has

the proper franchise agreement format that can be used as a template to

make your own franchise agreement by mentioning your terms and policies.

You can also prepare your franchise agreement format in word.

A sample template of franchise agreement sample has been added

below:

WHY IS A FRANCHISE AGREEMENT REQUIRED?

A Franchise Agreement is a necessary document that establishes and

determines the rights and obligations of the franchisor and the franchisee. This

agreement necessarily aims at protecting the intellectual property of the

franchisor which is accessible to the franchisee.

Within this agreement a number of important points relating to the rights of

the franchisee and the duties of the franchisor are inculcated which helps,

both the franchisor and the franchisee to be clear with their roles. It elaborates

all the rules that the franchisee must follow and also consists of clauses that

ensure the protection of the franchisee and non-violation of the franchisee’s

rights by the franchisor. In case of any dispute, the two parties can easily come

to a conclusion by referring to the clauses of the franchise agreement.

It is important that a franchise agreement is flexible enough to allow the

franchisor to make contractual modifications in case there is a specific need to

do the same. It is both, a legal obligation and an obligation from the agreement

point of view for a franchise and the franchisor to prepare a franchise

agreement document. document