An official, binding agreement between a franchisor and franchisee is known as a Franchise Agreement. In this agreement, the franchisee typically pays the franchisor an actual opening cost and yearly licensing fees in exchange for obtaining a franchise.
The creation and conclusion of a franchise agreement is not simple. So, you will need some legal advice. During the process you might face some obstacles and problems and a legal expert could minimize them with good foresight.
In this regard, Karimi & Associates Law Firm, with a team of experienced and expert lawyers in various legal fields, by providing specialized legal advice, accompanies and supports your interests in this process.
Franchise Agreements Definition
A franchise is a sort of license that enables a franchisee to use the franchisor’s brand name to sell goods and services by having access to the franchisor’s secret business techniques, procedures, and trademarks. When a franchisor (the person who founded the business) wants to provide a franchisee the right to be allowed to operate under the same name and brand while utilizing its system, it must make sure that ownership and control of the business brand and operating system stay with the franchisor.
Involving Parties in Franchise Agreements
A franchisor grants the right to use its name, skill, and intellectual property to open outlets and sell goods or services. The company of origin or already existing is the one that sells the licence to use its name and concept.
An independent business owner who manages a franchise is referred to as a franchisee. By doing this, the franchisee has acquired the right to promote and sell the same brand while adhering to the identical standards as the original business by using the trademarks, affiliated brands, and confidential information of an existing business.
Advantages and Disadvantages of Franchise Agreements
Purchasing a franchise has many benefits as well as disadvantages. Widely recognized advantages include a pre-established business formula to be used. A franchise includes tried and tested products and services and is often a well-known brand. Some franchisors provide lists of licensed suppliers, financial planning tools, and training. Franchises have a proven methodology and track record, but there is no guarantee of success.
But, it is not all about the advantages. Costly beginning expenses as well as recurring royalties are drawbacks. Franchises by definition require recurring payments to the franchisor in the form of a percentage of gross sales or income. The proportion can vary from 4 to 12.5 percent depending on the industry.
Franchise Agreement Process
1) Meeting a potential franchisor.
2) Determining the suggested territory rights for the franchisee’s site.
3) Establishing the minimum requirements for performance and the corresponding fines for failed goals.
4) Choosing the exchange amount for using the product or service.
5) Establishing the advertising guidelines and intellectual property rules governing the transaction.
6) Setting up a time for both sides to sign the franchise agreement.
All these activities shall be done carefully, considering all aspects of cooperation so, contacting a legal expert to assist in turning interactions and notes into coherent documents is an important step toward achieving a strong cooperation.
Types of Franchise Agreements
A franchise agreement outlines the cooperation between the franchisor and the franchisee. It also specifies the obligations and responsibilities to be fulfilled by both parties. However, certain circumstances may require a particular type of franchise arrangement over others.
Franchise agreements come in seven different varieties, including:
1) Agreements for master franchises
2) Franchise arrangements for product distribution
3) Franchise agreements for jobs
4) Franchise conversion agreements
5) Franchise investment agreements
6) Business-style franchise agreements
7) Contracts for local development
It shall be noticed that a master franchise agreement is enough in many circumstances. But depending on your industry, your market, and your area, the needs may change.
Key Elements of a Franchise Agreement
Whichever type you use, franchise agreements usually include the same elements. But, if you require a very specific agreement, there can be important variances. Consequently, whenever you design contracts, you should always look for a customized solution.
Please note that these elements will lay the groundwork and establish the tone for your connection with your franchisors. Be sure that your franchise agreements include all the relevant clauses and components to be accurate and comprehensive.
The elements are as follows:
- Territorial claims
- Minimum requirements for performance
- Needs for franchisor services
- Franchisee fees
- Using trademarks
- Advertising guidelines
- Exceptional clause
- Insurance specifications
Now it is time to clarify two essential elements. The key obligations of Franchisors and Franchisees.
In order for franchisees to create and maintain a successful and effective location that offers high-quality services or goods, a franchisor is responsible for establishing, putting into place, and maintaining support and training processes. It is the responsibility of franchisors to continuously enhance their operations through the application of new technology and research. Franchisees will inevitably become frustrated with and hampered by outdated systems.
The franchisor is typically in charge of brand advertising and is required to take action to safeguard the brand and any associated trademarks. Controlling unlawful use of the name is only one aspect of protecting the brand.
The brand’s reputation could be damaged by a sub-category franchisee, which affects the company as a whole and all other franchisees. So, a quality control system must be in place for a franchisor to identify franchisees who are not delivering the level of service or product quality that is consistent with the brand.
Franchisees must adhere to the business model in force, including the choice of space, furniture, property and aesthetics.
The franchisee is in charge of expanding the business within its specific area of operation using customary forms of advertising and marketing. Yet before they are made public, all marketing initiatives require the initial establishment’s approval.
Franchisees are expected to maintain the brand name as the franchise’s management by supplying only authorized goods and services that were produced by or obtained from the original company.
Each and every franchisee in the system has a responsibility to communicate with the franchisor and work together with their peers. Additionally, franchisees are required to participate in brand-provided mandatory training sessions that provide them the skills they need to train others and guarantee a thorough awareness of how the company runs.
Because every franchise is unique, a franchise agreement will specify in detail what is expected of each party. The goal of both the franchisee and the franchisor’s collaboration is to strengthen the brand and expand the company. To find the perfect franchise, please contact Karimi & Associates Law Firm through our contact us section and receive specialized legal advice in this field from our team of expert lawyers.