franchising aspects Nov, 20 2009

Must haves for a franchise agreement

If you have the desire to take your business to another level then franchising is the best way forward. The very first step to expand your business for aspiring entrepreneurs is documenting the legal rights and obligations for the franchisees. Read on to

By Ramanjit Kaur
Feature Writer
Must haves for a franchise agreement

A franchise agreement is a legal document that comprises the rights and obligations of the franchisor and the franchisees. It is the only official agreement that binds both the parties together. If the franchisee has decided to take up franchising to expand his/her business, then it is advisable to get in touch with a legal representative to guide the aspirant through the legal procedures and agreements. Being a novice in franchising business, one needs the help of a supervisor with excellent expertise of the franchising model, technicalities and other legal agreements.

Objectives of preparing the franchise agreement

A franchise agreement is prepared to achieve three elementary objectives. They are as follows:

  • It must precisely reveal the terms and conditions on which the franchisor and the franchisees have agreed.
  • It must mention the intellectual properties that a franchisor provides to his/her franchisees, and should also ensure the benefits to both the parties.
  • It should also clarify the obligations of both the parties.

The franchise agreement usually contains provisions. The points are covered in substantial details as follows:

Franchise fee and investment: A franchise agreement must include franchise fee to avail the rights of the franchisor’s trade mark and operating system. Apart from the franchise fee, the franchisor must mention about the estimated amount required to set-up the franchise business.

Royalty: The franchise agreement should mention the royalty fees. The agreement must also include the procedure that needs to be followed to pay the royalty. This can be paid on a monthly, quarterly or annual basis.

Training and ongoing support: One of the agreements also includes, providing of training modules and technical and administrative support of the franchisor to the franchisee. Also, the information regarding the location and the duration of such training needs to covered in details.

Marketing support: In the legal document, a franchisor should reveal the marketing commitment (if any) and what a franchisee is required to pay for the marketing support.

Brand name, signage and copyright: It is an important part of the franchise agreement that covers the trademark, signage, copyrights and the confidential information of the franchisor and his/her company. This provision not just grant relevant rights to the franchisees to use the intellectual property but also reserve the franchisor’s right to protect the infringement of his assets.

Franchise territory: The franchise document must mention about the allocation of exclusive territorial rights to the franchisees by the franchisor.

Modus-operandi of franchising:  The franchisor must ensure the availability of all the technical and other necessary help that a franchisee needs to run the franchise successfully.

Duration of franchise agreement: The franchise agreement must include the duration of the agreement.

Terms of renewal or termination of the franchise agreement: A franchisor must state in the franchise agreement of the renewal and termination of the agreement. Mentioning the terms and conditions of franchise renewal or cessation gives the franchisor or the franchisee a right to take legal action in case of any infringement.

Right to resale the franchise: The franchise agreement must clearly mention the rights of reselling the franchise on part of the franchisee. Also, if the franchisor would be willing to buy back the franchise at a preset cost.

Clarification of laws:  The franchisee and the franchisor are recommended to be very clear with all the provisions in order to secure themselves from future disputes. As, India lacks a franchise law therefore, it becomes more significant to have at least a legal document that describes the rights and obligations of the franchisor and the franchisees. As a franchisor, one must incorporate all the relative information that can be consulted in case of any difficulty or problem.

The franchisee and the franchisor are suggested to make the franchising agreement clear and understandable in order the avail the rights and privileges of franchising.

Related: Getting the business plan right

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