A franchise business is backed by proper legal documents. Franchise agreements solve the purpose of reminding the obligations of the franchisor as well as the franchisees when it comes to the franchise business. These documents can be lengthy and tiresome to prepare since these documents can be used on legal grounds. Thorough research and knowledge about the legal bounds of the franchise business are absolutely essential. To keep things in order and cut to the chase, making a checklist is life-saving.
To comprehend the importance of a Franchise Agreement, one needs to understand the purpose of the document.
- It protects the intellectual property rights of a franchisor.
- The document establishes consistent standards for how the franchisee should operate under the franchise.
What makes Franchise Agreements Important?
Franchise agreements are inevitable when the business owner is interested in creating a franchise relationship with a franchisee and regularising their access to the brand. The document contains guidelines for running a franchise. For businesses from the United States, the franchise agreement is considered valid if it meets the requirements mentioned by the Federal Trade Commission (FTC):
- The franchisee’s business is fairly linked to the franchisor’s brand.
- The franchisor controls and regulates the functioning and operation of the franchise and provides well-prepared guidelines.
- The franchisee pays a defined fee to the franchisor in return for giving them the right to operate their business under their trademark.
Important Terms in the Franchise Agreement:
As detailed as it can be, Franchise Agreement absolutely tires individuals from a non-franchise background. But as a franchise one is not left with an option to choose whether or not to prepare a franchise agreement document.
So here are a few key terms that are substantially included in the franchise agreements:
- Franchise: The license to use a company’s name, business system, and intellectual property to sell products or services of the parent company.
- Franchisor: the legal party that owns a company and offers franchises to independent seekers.
- Franchisee: the legal party who purchases the franchise.
- Territory: The geographical area where the franchisee is granted to operate.
- Term: The time period during which the franchise agreement or any kind of contract is valid.
- Royalty: A periodic fee that the franchisee pays to the franchise to continue using their intellectual property and business model.
- Renewal: The franchisor’s right to extend the term of the franchise agreement (at their discretion)
- Initial Investment: The total costs associated with opening and operating a franchise location.
Checklist: What Should make to the Franchise Agreement?
For a complicated document such as a franchise agreement it is necessary that while drafting, one should not miss out on any key aspects. Hence the experts recommend preparing a checklist before drafting the final agreement.
Similar to some other business agreements, a franchise agreement needs to be browsed thru without keeping any doubts. Once the list acquires the primary elements that one needs to understand about the franchise owner, it’s far already time to be able to verify the content of the franchise agreement. Listed below are the contents that are vital to be protected in this document:
- The initial Fee of the franchise is discussed in a greater certain way
- A time period where franchise charges shall be made.
- Specifications associated with exclusivity grant.
- The royalty fee for the franchise transaction.
- The unique terms should be honored with the aid of the franchise proprietor and the franchisee.
- Employee training and improvement.
- Specifications on how the franchise exclusivity may be maintained.
- The territory that the franchise settlement scopes.
- Document necessities include accounting reviews, economic statements, auditing outcomes, and the like.
- The certainty of the premises or area of the franchise.
- The agreement is associated with production, control, operations, and substances.
- Association with Trademarks, copyright possession, and licenses.
- The legalities involved with the franchise termination, at the franchisor’s discretion .
- The policies for refund, if relevant.
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