About FRANCHISE AGREEMENT
Franchising is a method by which one party known as the “Franchisor” distributes the products or services offered by their business with the help of the other party, known as “Franchisee”. In franchising, the franchisor licenses their trademark and provides their business system to the franchisee who pays a royalty in exchange for the same.
Franchising is a method that is utilised by any provider of a product or service who is looking to expand their business but is unable to strictly monitor the day-to-day business operations of the new location in which their business now operates. By franchising their business, the franchisor expands their business without undertaking the strain of monitoring the day-to-day business operations. The Franchisee has the advantage of beginning a business with a pre-made business model, technical expertise to run the business and the Goodwill possessed by the franchisor.
The Franchise Agreement is the agreement that authorizes the usage of the trademark of the franchisor by the franchisee. In addition to the same, the agreement defines the terms and conditions that both parties are required to follow. It is important as it determines the degree of autonomy the franchisee possesses as well as which actions are prohibited. It is necessary to define these terms and conditions exhaustively as the actions of the franchisee not only impact the business of the franchisee but the franchise as a whole. In order to protect the goodwill earned by the franchisor as well as any other technical expertise which the franchisor has developed to gain an advantage over their competitors, it is necessary to enter into a strong franchise agreement that protects their interests.
Frequently Asked Question
The franchise agreement should definitely include the following provisions:
- Identity of the Franchisor and the Franchise.
- Site Selection and Development.
- Grant of Franchise rights and terms.
- Training and Support.
Choosing a perfect franchise for yourself can be difficult but these questions can surely bring you more clarity.
- Are you passionate about the industry in which you are interested in purchasing a franchise?
- Do you understand the legal and financial implications of buying a franchise?
- Do you want to be a part-time or a full-time franchisee?
- How much support will your franchisor give you on a day-to-day basis?
- What will be the revenue generated from the franchise?
Yes, a franchise agreement can be negotiated, although this completely depends upon the franchisor and their terms and conditions. Franchisors reserve the right to make company-wide decisions, but you can negotiate in the agreement your right to obtain certain waivers and a period of time to make any necessary changes when the franchisor makes major decisions that affect your franchise.
If a franchisee chooses to walk away from their contract at the end of the agreement term, there may be some exit conditions to fulfill before leaving. Usually, franchisees must notify the franchisor of their decision six months before the contract’s expiry date.