Franchise agreement sample

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. 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.

1. FRANCHISE AGREEMENT FORMAT

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. 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 rights to open a business using the franchisor’s
intellectual property, systems, and brand, provided it meets certain conditions.

It is very important that as the owner of a business entity, one abides by the
laws mentioned in the constitution while framing the franchise agreement
which should be based on the principles of these laws.
The major laws that hold the features of a franchise agreement are as follows:

● The Indian Contract Act, 1872:
● The Competition Act, 2002.
● Consumer Protection Act, 1996:
● The Foreign Exchange Management Act, 1999

2. 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-franchise
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.

3. 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.

4. 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.

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

5. 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 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

6. 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.