Are you considering buying into a franchise? It can be a great way to enter the business world while avoiding so many of the headaches start-up founders face. There is often built-in structure and name recognition when it comes to a franchise. There are also training opportunities and operational guidance built into the purchase. Before you sign on the dotted line, however, be sure you are signing an agreement that has everything that should be in a franchise agreement. Wondering what should be included in a franchise agreement? We will talk more about that here.
What Should Be Included in a Franchise Agreement?
A franchise agreement is a legal document executed between a franchisor and a franchisee, the person buying into the franchise. As such, it is a legally binding agreement that details things such as what the franchisor will expect and require of you as the franchisee in how the business is operated. Because there are so many different types of businesses that operate franchises, franchise agreements can greatly vary on the terms and conditions included as well as the methods of operations prescribed.
The purpose of a franchise agreement is really to set forth the relationship between the franchisee and the franchisor. Things that should be included in the franchise agreement include:
- The franchise fee: This is the fee to be paid by the franchisee to the franchisor to buy into the franchise. This fee is to be paid up front and the costs should be clearly detailed. The agreement should also detail any ongoing fees that franchisee will be responsible for, such as royalties, which is often a percentage of total sales generated and paid each month.
- Permission to use the franchisor’s intellectual property: The agreement should grant you use of trademarks and patents, such as logos and trade names used by the franchise.
- Location and territory: Your designated territory should be set forth in the agreement. This is the area in which your franchise will operate. It should also detail what exclusive rights, if any, you have to operating a franchise within that territory.
- Operation methods: The agreement should detail how the franchise should run. This can range from how the franchise should market and advertise to every day operational systems.
- Training opportunities and ongoing support: Detailing training opportunities for management and staff of the franchise can be an important part of the franchise agreement. It should also detail any ongoing support that the franchisor will offer to the franchisee.
Duration and exit strategies: The agreement should establish the length of the franchise agreement as well as provide for how a franchisee may renew the agreement or make an early exit from the agreement. Should issues arise, the agreement should provide a means for dispute resolution, such as arbitration.
Business Law Attorney
Becoming a franchisee is an exciting thing, but it is also a substantial investment and should be entered into with the greatest of care. Let the team at The Kumar Law Firm make sure that the franchise agreement protects your best interests and that of your business endeavor. Contact us today.