Legal Guide

Know Everything About Franchise Agreement Draft

by Bhavya Choudhary · 4 min read

Franchise agreement draft

Introduction

This is a way of business where the parent company operates through several smaller branches all over the country, and small businesses or individuals operate it by complying with certain standards and regulations that are prescribed by the parent company based on its business speculations.

What is a Franchise Agreement?

This is a type of agreement that is legally valid, through which an established parent organization allows small businesses or individuals to share its brand, the operation method, and standards and help them set up a smaller version of the same brand in exchange for profit earned and the generated income share are mentioned in the franchise agreement draft.

This type of franchise agreement draft outlines the monthly fees, royalty fees, fees for franchising, operational costs, and ownership expenditures.

Different terms that are used in a Franchise Agreement Draft

There are several words and terms which are specifically used in a franchise agreement draft. These are important to build a correct structure and process the agreement further for initializing the business of the new branch.

The terms are as follows:

  • Grant: It is a kind of non-exclusive right in the franchise agreement draft that is passed on to the Franchisee for operating the brand as per the specifications. This is granted by the Franchiser to maximize their profit and provide opportunities to other businesses. The franchisee enjoys the authority only until the agreement is valid. The period is stated briefly in the franchise agreement.
  • Terms: This means the terms and conditions mentioned in the franchise agreement draft that is to be followed. The date of commencement and termination is stated. Both parties also mention any renewal instance in this clause.
  • Consideration: This term in the franchise agreement draft means that factor on which the Franchiser has agreed to provide non-exclusive rights to the franchisee. This is generally based on a duration stated in the franchise agreement. It mainly depends on the terms and conditions as stated in the franchise agreement draft.
  • Operating and Training Assistance: This is mentioned in the franchise agreement draft and means that the Franchiser will provide the necessary operating assistance and training assistance to the franchisee to operate and function productively. This helps the business to teach the new employees for further business operation and efficiency.
  • Franchisee business operation: This term is very important in the franchise agreement draft; it means the roles and responsibilities of both the franchisor and franchisee. It is stated in the agreement for prompt reviewing and effectiveness. It also includes any services provided, modifications, or fund transfers.
  • Confidentiality: This term is provided by the Franchisor in the franchise agreement draft to ensure that sensitive information about the company and its business protocol does not get disclosed in any way. Hence, it is strictly confidential, and the other business is prohibited from disclosure.
  • Advertisement: This term in the franchise agreement draft means that the right to advertise the brand is granted by the Franchiser on the condition that it is beneficial to the brand and not detrimental at any cost.
  • Marks: The right to use the mark is provided by the Franchisor to the Franchisee. It is also important to be mentioned in the franchise agreementdraft as they give the right to business operation and fee sharing.

Obligations of the Franchisee

The franchisee needs to follow certain obligations along with the terms and conditions mentioned in the franchise agreement draft. These are as follows:

  • Agreement executed on Franchisor’s request by the franchisee. Here the franchiser is the sole discretion. The franchisee is furthermore obligated to comply with the brand name, trademark, and trade name.
  • A business sign or logo should be affixed on the business location and premises to claim that the so and so business is independently owned and operated on the permission grant of the franchiser. It ensures the authorization of the franchisee.
  • The franchiser has the power to take action in case of infringement.
  • The parties involved must cooperate during the chance of a sudden inspection, as the same might be stated in the franchise agreement draft.
  • The franchisee should have mentioned in the franchise agreement draft that they will not form any association with any other business, syndicate, or corporation. This can last even after the termination of the validity of the franchise agreement. The franchisee should not enter into contracts until consents with the franchiser.
  • They must provide all information and acknowledgment about the shareholders, officers, or directors who play a part in running the business, and such terms need legal advice to be interpreted thoroughly.

Agreement Termination

The franchiser holds the right to terminate the contract as required as it is granted with a written notice.

  • If the franchiser feels that the employees and workers are not competent to work under the brand even after the investment of training them, the franchiser may terminate the agreement and get back the money invested.
  • The franchisee is to receive their invested money back in nearly 2 to 3 days after the termination of the agreement.
  • In the case of any kind of contract breach, the franchisee has ten days to provide the Redressal after the written notice with proper legal advice.
  • The agreement terminates if the franchisee is unable to complete the duties or comply with the necessary terms of the due ten days.
  • If the franchisee is found to be working for the benefit of creditors.

Conclusion 

Both the Franchiser and the Franchisee have to comply with certain terms and conditions while entering into a contract to maximise their share and profits. It must be made with selective terms and clauses for better understanding and operation. One must consult a lawyer to make a franchise agreement draft.

The franchise agreement draft can be prepared with the help of an expert or professional who is apt with the format and structure. It helps in efficient handling and prompt execution.

Bhavya Choudhary

Written by

Bhavya Choudhary

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