Drawing up a franchise agreement is a fairly simple process. However, there are legal and financial issues that you need to weigh carefully. The idea behind a franchise is to help you make a lot of money and gain brand awareness. Make sure your documents reflect the level at which you are working. Key Finding: Franchisors and franchisees should aim to reach an agreement that is fair to both parties, although some elements, particularly rate structures, may not be debated. Each franchisee chooses its own location. However, the franchisor usually has the right to approve the location. A franchisee essentially acquires the right to operate a business under the established system, game manual and franchisor`s brand. Franchises have a proven business model and investors want to benefit from their returns, especially those with prior knowledge. Franchisors and franchisees must jointly agree on expectations and policies.

This section describes the exclusive territory or territory granted to the franchisee. The franchise agreement governs everything about how the franchisee manages the new business and determines what they can expect from the franchisor. Learn more about what`s included in the agreement and what it means when you decide to franchise your business or become a franchisee. The agreement determines whether the franchisee will receive protected or exclusive territory. Your franchise lawyer can also review new and existing contracts as you draft and maintain them. Document management and legal reviews can become time-consuming activities for busy business leaders. You can delegate these responsibilities to your legal team. According to FTC rules, there are three normal necessities for a license to be considered a franchise: The franchise agreement also specifies many actions that cannot be performed. The franchise agreement will specify a wide range of measures that cannot be implemented as a franchisee. Many of them are reasonable, such as non-compete obligations. Since the franchisor is about to disclose many exclusive products, processes and services to you, it makes sense that it contractually protects its investment.

This is also important to you as it protects your interests as the entire franchise grows and adds additional franchisees. What happens if the franchise agreement expires or ends prematurely? The document will specify what the parties must do to complete the business relationship. Typically, this is a long list of specific obligations for the franchisee. This includes the obligation to stop using the brand name, remove the signs, return the user manual and pay all amounts due. “Every franchisor is slightly different because every brand wants something different from their franchisee,” Goldman said. If a contract contains these three elements, federal law automatically considers them a franchise agreement, regardless of its name. Potential franchisees often want to know if they can negotiate the franchise agreement. Technically, the answer is yes. You should always try to negotiate.

However, be prepared for the franchisor to refuse. The nature of a franchise system is such that the franchisor tries to keep all requirements uniform. An experienced franchise lawyer can explain the important provisions of the franchise agreement. A franchised lawyer may also point out unusually harsh or one-sided provisions that are not common in the industry. An experienced lawyer will understand what to look for in the franchise`s disclosure document and will be able to identify red flags. In addition, the lawyer may be aware of customary law and state laws that protect franchisees. If you know the most important points before you sign, you can`t make a big mistake. According to Goldman, franchise agreements are usually concluded over several years. They usually last between five and 25 years, with 10 years being the average duration of a franchise agreement. Agreements often also include renewal conditions. Some states, including New Jersey and Wisconsin, recognize perpetual franchise agreements.

These are franchise agreements that are renewed every 10 years, sometimes automatically, indefinitely. As a franchisee or potential franchisee, the franchise agreement is the most important document for your franchise investment. If a franchisor promises you something and you rely on that promise, it must be included in the franchise agreement or an amendment to the franchise agreement. To learn more about buying a franchise and the due diligence steps to evaluate, click here. As a franchisee, you must keep accurate records and provide regular financial and operational reports. Since royalties often represent a percentage of gross sales, it is particularly important to provide accurate sales figures. The franchisor generally has the right to request additional information, including tax returns, and to review your records. You may also be charged an exam fee. In the United States, a franchise company falls under the Federal Trade Commission`s FtC franchise rule. This is a set of federal regulations that govern most franchises (with a few exceptions). The FTC rule imposes strict disclosure requirements on franchisors in the form of a Franchise Disclosure Document (FDD), which must be given to a potential franchisee.

A franchise agreement is a license that sets out the rights and obligations of the franchisor and franchisee. The purpose of this Agreement is to protect the intellectual property (IP) of the franchisor and to ensure the uniform functioning of each of its licensees under its trademark. Although the relationship is codified in a written agreement that is expected to last up to 20 years, the franchisor must be able to further develop the brand and its offer to consumers in order to remain competitive. Franchisors are required to make the FDD available to potential franchisees at least 14 days prior to signing. If the franchisor then makes major changes to the contract, it must give the franchisee at least seven days to review the franchise agreement before signing it. Here is an article on what franchisors look for in a franchisee. • The rights and obligations of a franchisee in the event of termination Read and review this document and have it reviewed by a lawyer with franchise experience. You want to be informed before signing a franchise agreement. Similar to a marriage, you want this relationship to be lasting. A franchise agreement protects your company`s legal rights. .