To become a franchisor, you must sign a contract.
Both sides are protected by a franchise agreement. The franchise agreement protects both the franchisor and the franchisee. You will make a significant financial investment when purchasing a franchise. Signed agreements give you the right to protect your investment.
What is a franchise agreement?
A franchise agreement is a master legal document which outlines the rights and responsibilities of two parties involved in a franchise, namely the franchisor and the franchisee .
A franchise agreement is, in legal terms, a license granted by the franchisor. A license is a simple agreement where one party grants permission to another to use or do something valuable. This is what it means when it comes to franchising agreements.
- The franchisor grants the franchisee a license to use its intellectual property, brand and systems.
- Franchisees are granted the right to use the intellectual property of the franchisor, its systems, and brand if they meet certain conditions.
The definition for franchise agreement may be simple, but the documentation is often complex.
The average franchise agreement is between 25 and 30 pages. The final agreement may be up to three times longer after adding all addenda and exhibits.
Key Franchise Agreement Points
You should know the following 20 facts about franchise agreements.
1. Disclosure
The FTC Franchise Rules are the rules that govern franchise businesses in the United States. The Federal Franchise Rule is a set Federal regulations that governs most franchises.
The FTC Rule requires franchisors to provide a Franchise Disclosure document (FDD) to prospective franchisees.
A copy of the Franchise Agreement is one of the information pieces required in the Disclosure. This copy must be delivered with the FDD at least 14 days prior to entering into a contract. You will have time to discuss and review the contract with an attorney.
The Franchise Disclosure Document contains more than just basic disclosure requirements. It often includes detailed provisions about the franchisor’s financial performance, legal and financial obligations, and background information.
The information includes the franchisee’s bankruptcy record, litigation history and estimated initial investment. This comprehensive data will help you make an informed choice.
2. Trademarks and Intellectual Property
Franchise agreements grant the franchisee rights to use trademarks, servicemarks, logos and slogans as well as other branding indicators. The franchisor may also grant the franchisee the right to use intellectual property, such as proprietary software and operating manuals.
The contract is built on this contractual license. It is essential for a franchisee to be able use intellectual property in a legal manner.
This agreement will also outline the limitations and protections for these intellectual property rights. You must follow specific guidelines to ensure brand consistency and legal compliance as a franchisee.
This section will also explain the franchisee’s obligation to defend their intellectual property from third-party claims.
3. Support and Training
This agreement will specify the obligation of the franchisor to provide support and training services. This obligation applies both before opening and throughout the entire franchise agreement.
This section will often include provisions for continuing development and training programs that keep franchisees up-to-date on the latest technologies, marketing strategies and operational improvements. This section may also include information on the types of support offered, such as marketing, technology and operational consulting.
