What is the importance of getting franchise agreement?

A franchise agreement is a kind of legal agreement on a document that is entered into by two parties, one being the franchisor and the other being franchisee. This is done for opening and operating a franchise unit. And it’s usually a single unit. However, if the franchisee wants to open additional units then separate agreements for each unit will be required. These franchise agreements vary greatly with respect to the franchisor. But there are certain common elements in it, which are given below:-

Elements of a Franchise Agreement

• Details of the franchisor and the franchisee.

So, basically, this element involves details and legal authority of a person who is entering into the franchise agreement on behalf of the franchisor and the franchisee. Mostly the franchise agreement is between two legal entities like two companies and in such situation, the directors or the authorized officers by a board resolution will be the one to sign on an agreement. Both on behalf of their respective companies.

Franchise Fee & Consideration

The terms of franchise fees, its deposits, and royalties along with the advertising fees and other changes are mentioned in lengths in a separate section. The mode of payments and the due dates of those payments are also mentioned in detailed lengths. It is important to ensure these terms of franchise fees are mentioned in the franchise agreement and are as per the basic agreement and understanding between the two parties that is the franchisor and the franchisee before both the parties sign the final franchise agreement.

Business Operations

One of the biggest assets in a franchise agreement is that the franchisor is involved and helps with the operations of the units of the franchise. These are based on their past experience and their expertise. Now all the franchise agreements are supposed to contain information regarding what level of support will be provided by the franchisor and what responsibilities will be taken by the franchisee.

Following are some of the covered major areas of a franchise agreement:-

• The details of what goods and services will be given by the franchise.
• The mandatory obligation to purchase goods and/ or services exclusively from the franchisor.
• The Mandatory obligation for operating the franchisee unit which will be as per the standards of operations that are fixed by the franchisor.
• The Mandatory obligation of maintenance of bank accounts and the other details that are as per the franchisors requirement.
• The right of the franchisor for inspection of the unit at the regular intervals.

Governing Law and Dispute Resolution

Mentioning governing laws and jurisdiction in the document is a good practice. In case of the franchise agreement that’s being held between any Indian entity and any foreign entity then both the parties to the franchise agreement can designate the law of a foreign country and then submit it to the jurisdiction of a foreign Court, Be it exclusive or non-exclusive provided such a court has inherent jurisdiction over the dispute.

So these are some of the elements to include in a franchise agreement and more could be added. But the above mentioned are the base of this agreement. We at Enterslice are the renowned organization where we have hired many professionals who have years of experience in handling the legal processes. You don’t need to hesitate a bit in contacting as we can help you with the accurate procedure of Franchise Agreement anytime when you reach us. We have provided our phone number as well as the email address on our website, you can contact our representatives through that. We are 24/7 hr available at your end to assist you in a proper way.

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Checklist for drafting a proper Franchise Agreement

In order to understand as to how we can execute a proper franchise agreement, first we have to be clear what a Franchise is and why is Franchise Agreement executed. In one line we can say that a

What is a Franchise?

When an established brand decides to lend their name, goodwill and trade secrets to set up their Brand’s Store on different locations and executes an agreement for the same effect then such an agreement is termed as a Franchise Agreement. Here, Franchisor and Franchisee enter into a legal agreement where Franchisee operates its business under the name of the Franchisor in exchange of payment of some fees including initial payment and royalties.

Checklist for Franchisee Agreement

Following is an example of checklist to be considered before finalizing a Franchise agreement. This is done to make sure that the agreement is not ambiguous and includes all the key clauses.

Costing Related

• If the parties have decided on total cost, royalties etc. If yes then clear distinction is provided between total cost, initial fees, initial cost required, royalty amount are to be provided.
• If any part of the initial fee refundable or not.
• Payment terms are to be clearly defined including total amount, time of payment and other financial arrangements like lump sum payments or installment facilities etc
• If the royalty amount is fixed, revenue based or a combination of the two is finalized
• Provisions relating to advertising and promotion costs. And cost sharing details.

Location Related

• Who has the authority to select the location
• Can the franchisee operate in more than one location?
• After the termination of the contract can franchisee operate independently in the same area.
• Which party will be responsible to obtain zonal permissions etc.

Building, equipment and supplies Related

• Who will decide on building plans and related details
• Provisions relating to remodeling and redecorating and who will do it.
• Is franchisee required to purchase supplies and equipment from franchisor only
• Are building, equipment and supplies covered by any kind of Group insurance plan.if yes, then its details are to be mentioned.

Operations related

• Are accounting and bookkeeping is handled solely by franchise or there is an arrangement for the same too.
• Degree of control Franchisor has over the franchisee’s operations to make sure the brand quality is maintained.
• Management aid along with training and assistance provided by the Franchisor. And if the cost for the same if covered by the royalty fees or not.
• Are there any quota’s set for sale, operating hours in the contract.
• who will provide the promotional materials.
• Are there any provisions relating to hiring fir the franchisee.

Termination and Renewal Related

• What are the non-compliances under which agreement can be terminated by the Franchisor and vice versa.
• What are the restrictions imposed on franchisee in case of termination done by Franchisor.
• Is sufficient time provided in case of termination for amortization of capital payments?

Other Matters

• Is Franchisee assignable to legal heirs in case of death or disability or can it be sold or not.
• Is business name, trademark, logo or any other mark distinctly identified with the franchisor. And there are not subject to any dispute or litigation.
• If all the requirements are met by the franchisor before executing this agreement.

Other points to consider

• Can the franchisee sell the franchised business and assign the franchise agreement to the buyer?
• Is the franchise assignable to heirs, or may it be sold by the franchisee’s estate on death or disability?
• What is the duration of any patent or copyright material to the franchise? If time is limited, does the franchisor intend to renew, and is this spelled out in the franchise agreement?
• Has the franchisor met all law requirements (registration, escrow or bonding requirements, etc.), if applicable?

 

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