Franchises have become a quite popular option for individuals looking to launch a business as a unit of an already established and successful business. Whether you want to want to buy a franchise or you own the franchise, you need a franchise agreement to make the business transaction legal and enforceable in your country of residence.
One of the fastest ways to prepare this document is to use a franchise agreement sample. You can find these documents online for free and you can customize them to fit your specific purpose.
What is a Franchise Agreement?
A franchise agreement is a legally binding contract that is prepared and signed between the franchise owner, known as the franchisor, and the individual or company that wants to buy the franchise. This party is known as the franchisee.
The franchise contract contains the specific terms and conditions that are agreed between the parties on how the franchisee will use the franchisor’s business model to develop their business. A franchise is undoubtedly a lucrative business opportunity.
It gives the franchisee (the individual or company buying the franchise) the legal authority to operate a business using the processes, expertise, and ideas of the company that owns the franchise.
The franchise contract also states the expectations and requirements of the franchisor, which the franchisee has to abide by to run their business activities under the brand name of the franchisor. The expectations vary from one franchise to the other.
However, it includes aspects such as how the franchisee is expected to operate the business on a day-to-day basis. Since the operations, terms, and conditions of franchise vary from one brand to the other, there is no one-size-fits-all franchise contract. However, you can find a sample franchise agreement that will suit your needs.
Why Do You need a Franchise Agreement?
A franchise agreement makes it possible for an individual or business to start a business using the platform of an already successful brand. If you want to sell or buy a franchise, you need a franchise agreement to define the terms of the new business relationship with the other party.
The franchise contract covers specific terms relating to the brand, expertise, and system to be franchised. These terms must be clearly stated and both parties must agree to them to make the agreement legally binding.
The franchise agreement is usually prepared by the franchisor and it highlights the terms in which they would want to franchise their business or brand to the other party. There are sample franchise agreements that franchisors can use to develop and customize their agreement. You can be sure to find the perfect option online.
The franchise contract template must contain all the prerequisite sections and language that will make the contract enforceable. Even if you are using a template, it may be a good idea to share the document with your attorney. This will enable you to get a professional view of the document as well as input where necessary.
Dos and Don’ts Checklist for a Franchise Agreement
Although a franchise is highly lucrative, it is easy to get into trouble if the franchise agreement is not explicit enough. Both parties must understand the terms and conditions of the agreement. Additionally, there should not be any ambiguity in the contract.
One of the dangerous errors any party can make is to sign a contract on assumptions. If there is any part of the agreement that is not clear, it is better to clarify with the other party instead of assuming. To help you use your franchise contract sample judiciously, here are some dos and don’ts checklist that you should know.
- Investigate the franchise opportunities before you agree to the terms stated in the contract.
- Ask questions on any ambiguous aspect of the contract. Remember; there is no trivial question.
- Get your attorney to review the franchise agreement with you before you append your signature.
- Do not agree to the terms of the franchise without the approval of your attorney.
- Do not overlook any part of the document. Both the franchisor and the franchisee should carefully read through and understand the documents before finalizing them.
Tips for writing a Franchise Agreement
As stated above, you can use a franchising agreement example to create your franchise agreement. You can customize the sample to create the perfect contract that you can use for your franchise business. Here are some tips on what should be included in your franchise contract:
- Location and Territory: The details of the designated territory where the franchisee can operate should be clearly outlined with exclusive rights.
- Method of Operations: The contract should also highlight the franchisor’s expectations of the daily operations of the business in line with the brand guideline.
- Timeframe for the Franchise: The document should provide the details of the timeframe for the validity of the agreement.
- Investment, Fees, and Royalties: The financial implications of the franchise must be spelled out to avoid any misinterpretation.
- Marketing and Advertising: The franchise template should contain the details of the commitment of the franchisor regarding advertising and marketing as well as the fees needed to cover the marketing and advertising costs from the franchisee.
- Exit Strategy: The contract should also include a resale policy if the franchisee wishes to sell the franchise.
- Cancellation, Renewal, and Termination: The agreement should also highlight the terms for canceling, renewing, or terminating the franchise agreement.
A franchise agreement is a necessary contract if you want to sell or buy a franchise. When it comes to drafting the document, you can use a franchise agreement template free download to customize your contract.
This can be found online and you can directly edit the document online and share it with the other party. Both parties should carefully review the contracts and share them with their lawyers before agreeing to the terms of the agreement.