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Franchise Agreement


    What is Franchise Agreement?

    A legal contract in which a well-established business consents to provide its brand, operational model and required support to another party for them to set up and run a similar business in exchange for a fee and some share of the income generated. The franchise agreement lays out the details of what duties each party needs to perform and what compensation they can expect. It determines the terms and condition for both the parties and binds the party.

    Why is Franchise Agreement required?

    A franchise agreement is a license that establishes the rights and obligations of the franchisor and the franchisee. This agreement is designed to protect the franchisor's intellectual property and ensure consistency in how each of its licensees operates under its brand. Even though the relationship is codified in a written agreement that is meant to last at least 10–20 years, the franchisor needs to have the ability to evolve the brand and its consumer offering to stay competitive.

    The agreement also needs to be flexible enough to allow the franchisor to make contractual modifications that reflect decisions in response to franchisees' specific needs. However, there are no changes to the stipulation that franchisees must manage their independently-owned businesses daily by continually meeting brand standards.

    1. Helps in recognition-  a franchise agreement is necessary to enable the franchisee to capitalise on the franchisor's well-known brand name and use it. This helps to boost consumer confidence and build the reputation of the smaller company in the market

    2. Standardised operations- The standard operating procedures and processes that the franchisee must adhere to are outlined in the franchise agreement. This ensures uniformity in the brand image and customer experience across all franchise sites, this consistency helps to sustain the brand's associated quality.

    3. Marketing- The marketing and advertising methods of the franchisor are described in the agreement, along with any obligations placed on the franchisee. This guarantees a unified and well-coordinated strategy for marketing the brand, optimising its exposure, and maybe boosting foot traffic for every franchise location.

    What should a Franchise Agreement cover?

     

    The franchise agreement needs to deal with some basic elements including, but not limited to:

    • Overview of the relationship: This includes the parties to the contract, the ownership of the intellectual property (IP), and the overall obligations of the franchisee to operate its business to brand standards.

    • Duration of the franchise agreement: This involves the length of the relationship, the franchisee’s successor rights to enter into new agreements, and the requirement to upgrade the franchisee’s location.

    • Initial and continuing fees: Franchisees generally pay an initial and continuing fee to the franchisor for entering into the system and remaining a franchisee. Agreements also typically include a number of side fees. Most franchise systems provide for a payment to an advertising or brand fund that is used by the franchisor to market the brand to the public and for other contractually defined purposes.

    • Assigned territory: Not every franchise agreement grants a franchisee an exclusive or even a protected territory, but specifics about the territory must be defined. Franchisors also need to deal with reservation of their rights within a franchisee’s territory, including alternative distribution sites and sales over the internet.

    • Site selection and development: Franchisees generally find their own sites and develop them according to the franchisor’s standards. The role of the franchisor is generally to approve the location found by the franchisee and then approve, prior to opening, that the franchisee has built its location to meet design and other brand standards.

    • Initial and ongoing training and support: Franchisors generally provide a host of pre-opening and continuing support, including training, field, and headquarters support, supply chain, and quality control.

    • Use of intellectual property including trademarks, patents, and manuals: Every franchise system's most important asset is its intellectual property, some of which will alter as the system develops. The agreement outlines the franchisee's licence rights, the franchisee's permitted uses of the intellectual property, and the franchisor's ability to modify the operating manual to further develop the system.

    • Advertising: The franchisor will reveal its advertising commitment and what fees franchisees are required to pay toward those costs.

    • Insurance requirements: Franchise agreements will define the minimum insurance a franchisee is required to have prior to opening and during the term of the agreement.

    • Record-keeping and the right to audit the franchisee’s records: The franchisor defines the records that it needs its franchisees to maintain, the software franchisees are allowed to use, and its rights to access and audit that information.

    • Others: Some may call it boilerplate, but in well-developed agreements, it is not. Among the myriad issues contained in the franchise and other agreements are the franchisee's successor rights, default, termination, indemnification, dispute resolution, resale rights, transfer rights, rights of first refusal, sources of supply, local advertising requirements, governing law, general releases, personal guarantees, and roll-up provisions.

      You should consult an expert lawyer for your queries related to franchise agreements. You can reach an expert lawyer through LawRato and get free legal advice from the experts as well.

       

    Documents Required for Franchise Agreement

    There are no specific documents required to execute a Franchise Agreement. However, the franchisee must establish the fact the franchisor holds authority to delegate the franchisee and allied benefits to the franchisee. For this purpose, the franchisee must scrutinize all the relevant documents. Moreover, the parties must also scrutinize relevant documents pertaining to the identity of the parties involved in the agreement.

    Procedure for Franchise Agreement

    No set procedure is applicable in the making of a franchise agreement. The ownership documents evidencing the ownership of such business for franchise is being taken by the franchisee must be examined by a lawyer thoroughly. Once the agreement has been drafted by a lawyer, it should be specifically and carefully read by both the parties to the agreement. Any necessary changes required to be made shall be carried out and once the agreement is finalised, it shall be signed by both the parties along with the requisite witnesses. The agreement is then legally binding when it is printed on judicial stamp paper/e-stamp paper and signed by both the parties. The stamp paper value depends on the particular State in which it is executed. Each party should thereafter keep a signed copy of the Agreement.

    To understand more about agreements and licences which are necessary for a corporate office, you can download the free business documents which are drafted by the experts of the field and verified by LawRato.

    How can a lawyer help to draft Franchise Agreement?

    LawRato can connect you with various lawyers who are experts in the field of corporate law,  all you have to do is click on ‘Talk to a Lawyer’ after which a representative will call you to understand your needs and budget after which you will be provided a list of lawyers with their experience and work after which you can choose the best one.
    LawRato will also provide you with best documentation lawyer who has the necessary legal knowledge and experience to handle and draft such documents. The lawyer will be able to guide you and draft for you according to your needs.

  • Disclaimer: The information contained in the sample document is general legal information and should not be construed as legal advice to be applied to any specific factual situation. Any use of the Site or document format DOES NOT create or constitute a solicitor-client relationship between LawRato or any employee of or other person associated with LawRato and a user of the Site. The information or use of documents on the Site is not a substitute for the advice of a lawyer.

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