The Most Essential Elements of a Franchise Agreement

Franchising as a concept encourages partnerships of different kinds via different models. There are certain rights and privileges granted to the franchisees for which only the franchisee is accountable and some rights are preserved with the franchisor. But what guides both the franchisee and franchisor? What defines their rights what are the rules and regulations both of them have to abide by?

A franchise agreement is a legally binding document which outlines the franchisor’s terms and conditions for the franchise. It also outlines the obligations of the franchisor and the franchisee. The franchisor provides the franchisee with this agreement at the time when the individual decides to enter the system. For those who wonder what all this agreement states, here are the essential elements of a franchise agreement.

Franchisor-Franchisee Relationship

In the first place, the relationship of the franchisor and the franchisee is outlined. The parties bonded to the contract, the ownership of intellectual property, and the overall obligations of the franchisee to operate the brand standards etc are disclosed in the agreement.

Duration of the Agreement

The duration of the relationship is the tenure of the franchisor-franchisee. Generally, franchisors offer a franchise opportunity for a period of five to ten years. The tenure of the relationship is one of the most important aspects of the agreement. It can also be extended if the relationship remains harmonious and they both wish to continue the partnership further.

Franchise Fee

In a franchise agreement, the amount that the franchisee has to pay is also highlighted. Franchisees generally pay an initial and continuing fee to the franchisor at the initial stage of joining the franchise system. There are many other fees also that are articulated in the agreement. The franchise fee is basically the money that a franchisee offers to the franchisor to take the brand name, logo and other identity of the brand that can be used by the franchisee.

Business Operations

Another thing that has to get mentioned clearly in a franchise agreement is the business operations of a franchisee. One of the biggest advantages of owning a franchise unit is that you operate with the help of franchisor’s experience and expertise. Hence, it is important to include all the detailed information about the level of support provided by the franchisor and the other responsibilities of franchisee. Operations like procurement of goods or services, maintaining standards of operations fixed by franchisor, and account management etc are covered under this.

Site Selection and Development

One of the biggest responsibilities of the franchisee is to find the perfect location for the franchise unit. Usually, prior to opening the unit, the franchisee selects his/her preferred location and waits for the franchisor’s approval on it. Also, each and every specification about the location needs to be penned down in the franchise agreement so that it becomes an official franchise unit of the brand.

Training and Support

Most franchisors provide training and support to the franchisees. These trainings are mostly provided at pre-opening and ongoing level in the headquarters of the company about various topics such as supply chain, quality control and other management-related queries. The training period and schedules are all listed in the franchise agreement.

Use of Intellectual Property

Intellectual property including trademarks, patents and manuals are the valuable assets of the company and can be changed as the system evolves. Another big advantage of owning a franchise is that you can use some of the intellectual properties of the brand (as directed by the franchisor). Franchise agreement defines what is licensed to the franchisee, how franchisee can use intellectual properties of the brand and the rights of franchisor to evolve the system.