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.
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.
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
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.
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.
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.
DRAFT OF FRANCHISE AGREEMENT
This AGREEMENT entered into on the...............................day of......................., 20..............
BETWEEN:
....................................................Limited a Company incorporate under the Companies Act, 1956 or Companies Act, 2013, having its Registered Office at..........................., represented herein by its................................. Shri................................................. (hereinafter referred to as the ''XYZ Limited '', which expression shall, whenever the context so requires or admits mean and include its successors and assigns) of the ONE PART;
AND
M/s.................................................. a Partnership Firm, having its place of Business at.............................. represented herein by its Partner Shri............................. (hereinafter referred to as the ''AGENT'', which expression shall, unless the context so requires or admits mean and include its Partners for the time being, their heirs, legal representatives, executors and permitted assigns) of the OTHER PART;
WHEREAS XYZ Limited is engaged interalia in the business of marketing......products and are the owners of the trade name and trade mark ''XYZ'';
WHEREAS XYZ Limited is desirous of promoting........products under its trade name and trade mark by setting up chain or retail outlets all over the country on its own a also by appointing stockiest, retailers and franchises for the purpose of setting up of retail outlets;
WHEREAS the Agent has offered to set up one such Retail Outlet in the City of..... and has represented to XYZ Limited that it is in a position of invest necessary capital and is also possessed of a suitable premises to set up and carry on the Retail Outlet and XYZ Limited has accepted the said offer;
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS
That in consideration of the foregoing, the Company hereby appoint M/s......... as its Agent in the City of......... upon the following terms and conditions:
1. The retail outlet for marketing....... products under the name and style of ''XYZ'' shall be set up and run in the Premises made available by the Agent, which premises is more fully described in the Schedule Premises''. The premises will be made available free of cost or charges to XYZ Limited by the Agent during the subsistence of this Agreement.
2. The Agent will meet and bear the entire cost of furnishing and decorating the interior and exterior of the Schedule-Premises in accordance with the specifications and requirements of XYZ Limited, particularly touching upon the following aspects -- elevation, décor and interior design, selection of furniture, fitting, counters and stands, lighting system, illumination, mannequins, window display, air conditioning, fire fighting equipment, furnishings, flooring, etc. the cost of which is estimated to be of the order of Rs.......................... (Rupees.........................................) He shall also provide necessary warehousing facilities and office space for the Company's' representations.
3. The name of the Shop shall be promptly and clearly displayed as..........................;
4. XYZ Limited will make available from time to time to the Agent ....... products and shall be manufactured, sold or dealt in by XYZ Limited (hereinafter collectively referred to as ''Stockiest'') and the Agent will take the Stocks on consignment and sell the same in retail at prices fixed from time to time by the XYZ Limited. The stocks shall at all times be the property of the XYZ Limited and the Agent shall only be entrusted the Stocks for the purpose of enabling their retails sale.
5. The Agent at his cost will employ necessary personnel to man and manage the Retail Outlet to the entire satisfaction of XYZ Limited.
THE AGENT COVENANTS WITH THE COMPANY AS FOLLOWS:
1. It shall duly and promptly pay the owner of the Schedule Premises rents and other charges and keep the lease subsisting and valid and ensure that the Schedule Premises is always available for running of the Retail Outlet.
2. That it shall not directly or indirectly or in Partnership or Association, with friends or relatives, or Companies engaged itself in business, which is same or similar to the one being, carried on by XYZ Limited.
3. That it shall not sell, display or otherwise deal in any goods which are in any way similar to the goods sold or dealt in by XYZ Limited.
4. That it shall not use the Company''s trade name and/or trademark in any manner other than that which is permitted by XYZ Limited.
5. That all sales effected by the Agent shall be strictly for cash only.
6. That it shall furnish to XYZ Limited at such intervals as they may required certified stocks statement of the stock of all goods held by the Agent giving full and correct particulars thereof.
7. That it shall remit each day the entire sale proceeds of the preceding day to the credit of the designated account of XYZ Limited, which may be indicated from time to time and shall forthwith sent intimation of such remittances to XYZ Limited.
8. That it shall not draw, accept or endorse any Bill on behalf of the XYZ Limited or in any way pledge the credit of XYZ Limited except with the previous written authorization of XYZ Limited.
9. That it shall be at all times responsible to XYZ Limited for any damage occasioned to the Stock either on account of the improper or negligent conduct on the part of the Agent, its servants or agents or for any reason whatsoever and shall make goods such loss to the XYZ Limited as and when demanded without demur.
10. That it shall furnish an irrevocable Bank Guarantee for a sum of Rs.................. (Rupees.......................................) in favour of XYZ Limited covering the value of the Stocks held by it on consignment and that the said Bank Guarantee shall be enhanced from time to time as may be required by XYZ Limited to bring it in conformity with the value of the Stocks held by the Agent.
11. That it shall keep proper accounts of all Stocks received, sold, damaged and furnish to XYZ Limited each week full particulars of the Stocks and shall permit XYZ Limited, its agents and servants to inspect all Books of Account, Records and vouchers maintained in the Retail Outlet by it all reasonable times.
12. That it shall be responsible for any loss or damage sustained to the Stock while in the custody of the Agent.
DURATION: The duration of this Agreement shall be for a period of.............. years commencing from..........On the expiry of this period of earlier, the Agreement may be extended for such further period and on such terms as the parties may be mutually agreed in writing.
This Agreement is however terminable as follows:
a. by either party giving the other................. days notice in writing;
b. by XYZ Limited unilaterally without assigning any reasons
i. if the agent is found guilty of misconduct, or
ii. commits a breach of any of the provisions of the Agreement, or
iii. is dissolved, or
iv. any suit or other proceedings are instituted for its dissolution or winding up, or
v. commits any act of bankruptcy,
vi. suffers any execution or distress.
CONSIDERATION: In consideration of the foregoing, the Agent shall be entitled to a commission at the rate of......% of the net sale price realized by it in the Retail Outlet by sale of the Stocks. The expression net sale price shall mean the selling price of the Stocks excluding Sales Tax, local taxes and other levies imposed upon the sale or purchase of the Stocks and/or on the total turnover, packing and forwarding charges and gift wrapping charges.
The commission shall be payable by XYZ Limited on or before the.......... Day of the succeeding month for which it is due upon receipt of the monthly statement of sales and realization of the sale proceeds.
ASSIGNMENT: This Agreement or the benefit there from shall not be assignable or transferable by the Agent in favour of anyone without prior written consent of the company.
SECURITY DEPOSIT: In order to ensure XYZ Limited the due performance of its obligations under this Agreement, the Agent has this day deposited a sum of Rs................. (Rupees.....................................) by Pay Order bearing No..........dated.......... drawn on............. Bank............... Branch,......................, in favour of XYZ Limited as Security Deposit. The said amount will be refundable upon the termination of this Agreement, free of interest, in the event of there being no outstanding claim against the Agent by XYZ Limited. XYZ Limited will however be entitled to appropriate and adjust and amounts which may be due to it from the Agent from out of the Security Deposit.
JURISDICTION: This Agreement is executed at.................City and it is hereby agreed that Court situated in............ city alone will have exclusive jurisdiction over any matter arising under this Agreement to the execution of Courts situated in any part of the country.
SCHEDULE
Premises bearing No...................................... situated at............................................................................ admeasuring and bounded as follows:
MEASUREMENTS
East to West:
North to South:
BOUNDARIES
ON THE EAST
WEST
NORTH
SOUTH
:
:
:
:
: By
: By
: By
: By
IN WITNESS WHEREOF the parties above named have executed these presents in the presence of the Witnesses attesting hereunder on the dates and place mentioned herein below:
Place:
Dated:
For XYZ Limited,
WITNESSES
1. ()
2. ()
Agent
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.
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.
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A franchise agreement is a legal document that includes clauses stating the terms and conditions between the parties. It needs to be printed on a judicial / e-stamp paper of the correct value and signed by both parties. The agreement is required to be registered after stamping with proper value, as per State laws.
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FROM THE YEAR 2014 : is A franchise agreement IN CASE OF A PVT LTD is it necessary 1) To Contain co. identification like,. IN CASE OF A PVT LTD: LIKE CO. CIN NO. , DIRECTOR DIN NO (IF NOT CONTAIN IS IT VALID), PHOTO ETC ALONG WITH WITNESSES, 2) And franchise agreement only NOTARISED and NOT REGISTERED, can it be executed
CIN no is a unique identification no.by which a company's identity is tracked by the Ministry of Corporate Affairs. So as a matter of protocol and for avoidance of any question with respect to a Company with which you have contracted, it is essential to have it quoted in an agreement.Even in High courts, company petitions without CIN no is not accepted at time of filing.
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I have applied an franchise of compny , company head office in Kolkata but franchise in Indore, now we have to do sign on agreement, which state stamp paper we have to use , plz suggest
AGREEMENT OF MEMORANDUM OF AN AGREEMENT:-
not other wise provided for
(A) Where the value
i) Does not exceed Rs. 5,000/- : Ten Rupees
ii) Exceeds Rs. 5,000/- but does not exceed Rs. 20,000/- : Twenty Rupees
iii) Exceeds Rs. 20,000/- but does not exceed Rs. 50,000/- : Fifty Rupees
iv) Exceeds Rs. 50,000/- : One hundred rupees.
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I would like to have a lawyer who could guide me on processing the franchisee documents.
I have perused the contents of your query and would advise you to share the documents proposed to be executed for the franchise. Further you may seek a detailed consultancy from a lawyer having expertise in documentation.
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i have a shop on rent in new delhi which i want to give to another party without endangering my tenancy rights so i want a frnachise agreement to safe guard my rights.
Hello,
I am assuming that you do not want to run your own business activity in the rented commercial space and have a profit sharing relation with another person. If that is the case then you can enter into a profit sharing scheme with another party where the management and day to day activities are carried on by another party and you share a mutually decided profit. In order to check if a franchise agreement endangers your tenancy rights or not, we must look into your lease agreement first.
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Jangpura Extnsion, Delhi
I would like to get a clarification on when is the franchise fee expected to be paid to the franchisor. If it during the signing of the LOI or during the signing of the Franchise Agreement?
There is no hard and fast rule when it can be paid. But on a usual business course it is paid during the franchisee agreement and mentioned in the agreement as well.
If you need any further help you can get in touch with us.
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