Everything you needs to know about Franchise Agreement

Introduction-

A Franchise Agreement is an agreement where a franchisor provides its business model and brand name to a third party termed as Franchisee. After the Franchise Agreement, a franchise is owned by the individual but supervise by the Parent company i.e. Franchisor. A Franchise Agreement is governed by the covenant which is in the form of written agreement between the parties of the Franchise Agreement.

Elements of Franchise Agreement-

The franchise Agreement comprises of the below-mentioned elements-

• Franchise Agreement is considerably associated with the franchisor's brand. However, in franchising agreement, the franchisor and each of its franchisees are sharing a common brand.
• The Control remains with the franchisor. However, it provides significant assistance to the franchisee in how they use the franchisor's brand to conduct business.
• To enter into an agreement and to operate their business using the franchisor’s trademarks the franchisor receives a royalty from the franchisee.
• The parties to the Franchisee Agreement are legally bounded to the contract and also with the overall obligation of the franchisee to run the brand.
• The duration of the Franchisee agreement is one of the most important aspects of the Franchise Agreement. However, the duration of the Franchisee agreement depends upon how both parties further wish to continue the franchise agreement.
• The operation of business i.e. procurement of goods or services, maintaining standards of operations fixed by franchisor, and account management are operated with the guidance and help of the Franchisor’s experience.
• It is also important to find the best suitable place for the franchise unit. However, the approval of the franchisor is required.
• The franchisor provides training and guidance to the franchisees. Pre-opening training is provided to franchisees about various topics. Proper disclosure is provided in the franchise agreement related to the training duration.
• Franchise agreement describes what is licensed to the franchisee and how a franchisee can use the trademark of the franchisor. Owning a franchise gives the franchisee some rights related to an intellectual property right.

What are the rights and obligations under the Franchise Agreement?

The rights and obligations of the franchisor and franchisee are mentioned in the Franchise Agreement. The agreement is prepared in such a way to maintain consistency and protect the intellectual property right of the Franchisor.

The franchise agreement shall be flexible enough to allow both the parties to make contractual changes.

Signing of the Franchise Agreement-

The franchise agreement must be signed by both parties i.e. As the franchise agreement provides necessary information for purchasing the franchisee which includes the investments, risk, and rewards.

Advertising and Insurance Requirement-                 

The franchise fee includes the advertising fee which is required to be paid by the Franchisee. Further, minimum insurance is required before the opening and during the period of the franchise. The minimum insurance is defined in the franchise agreement.

Further, keeping the record of the franchisee details is the responsibility of the Franchisee.

Why a franchise agreement is used?

Before entering into a business relationship with a new franchisee, the franchise agreement is used by the franchisor as a document to present a potential franchisor for agreement. The agreement includes the details i.e.

• whether the parties (Franchisor or franchisee) are individuals or businesses, and their respective addresses and contact information.
• Information about the parties will also be included like duration of the agreement, fee information, and even how the franchisor's branded marks and copyrights should be treated.
• Franchisee agreement shows what covenant the franchisor owes the franchisee if any. Further, the Agreement is a vital document that will help in maintaining the relationship between the franchisor and franchisee.
• The Franchise Agreement legally binds the parties which are signed by both the parties (Franchisor and the Franchisee
• For future reference, Both the Franchisor and the Franchisee should keep a signed copy of the Franchise Agreement.

Law Applicable in Franchisee Agreement-

The applicable laws in the Franchisee agreement are subject to –

• Indian Contract Act,1872
• Trademark Act and Copyright Act. (To protect the intellectual property rights)

Contents of Franchisee Agreement-

The agreement shall include the following contents-

1.Details of the parties.

2.Duration of the franchise agreement.

3.Terms and conditions.

4.Limitation of territory

5.Renewal policy.

6. Imparting training and quality check.

7.Termination and obligation upon termination.

8.Resolution of Dispute.

Conclusion-

Franchisee Agreement is also termed as Business Agreement between two parties before starting the business. A well-developed Franchisee agreement reflects that the parties to the contract are agreeing with the terms and conditions of the agreement. As it outlines the expectations of both the parties and also relates to the protection of the franchisee.  However, the franchise agreement also includes the governing laws and dispute resolution panel in case anything goes wrong.