Franchise Agreement Draft
For any business wishing to sell its franchise and for any business person willing to start a business by buying a franchise for a brand, it is very important to satisfy all the legal requirements to avoid any kind of nuisance and havoc in the future.
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.
Franchise Agreement Format In India:
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 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.
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. Several other charges 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 any other 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 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 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- An analysis of the market must be 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 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, the franchisees must necessarily contribute to brand-building activities. These have to be 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 allows them to review the clauses of a relationship.
Franchise Agreements in Details :
There are franchise agreement sample pdfs that are available that have the proper franchise agreement format that can be used as a template to make your franchise agreement by mentioning your terms and policies. You can also prepare your franchise agreement format in word.
Apart from the above-mentioned points, a franchise should also take into concern the following points:
1.
Franchisee’s accounts
2.
Audit
3.
The sale of the business
4.
The death of the franchisee
5.
Termination
6.
Post-termination provisions
7.
Copyright
8.
Entire agreement
9. Waiver
10. Warranties
11. Improvements
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 franchise.
Within this agreement several 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 conclude by referring to the clauses of the franchise agreement.
A franchise agreement must be flexible enough to allow the franchisor to make contractual modifications in case there is a specific need to do the same.
Whenever preparing a franchise agreement, it is necessary to keep the following points in mind:
1.
Disclosure
2.
Trademark and intellectual property
3.
Support & training
4.
Advertising
5.
Long-term duration
6.
Signed and In-writing.
7.
Territory
8.
Fees and Expenses
9.
Site Selection
10. Termination
11. Obligations upon
Termination
12. Non-Competes
13. Arbitration
14. Insurance and
Indemnification.
15. Records and Audits
16. Physical Premises
and Renovations
17. Transfer and Re-Sale
18.No Industry Standard
Agreement
19. Negotiating
Thus, all the points must be taken care of while preparing a franchise agreement because once the franchise agreement is prepared, none of its terms can be redefined and remain the same till the end of the agreement term. These policies can be negotiated only once it is time for the franchise agreement to be renewed.
Conclusion:
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