The franchise agreement is a legal document entered between a franchisor and franchisee to open and operate a franchise unit. It is usually entered for one unit. If franchisee wishes to open more additional units, then the separate agreements are to be entered with.
Following are some common elements to be mentioned in the franchise agreement:
Details of Parties:
The details of franchisee and franchisor are mentioned at the beginning of the franchise agreement. The franchise agreement is executed between two legal entities or companies. The Director or Officer duly authorized by a Board Resolution signs on behalf of the franchisor and franchisee.
Fees & Consideration:
Terms of the fees, deposit, advertising fees, royalties and many other charges shall be mentioned in the different clause. Also, the payment and due date for payment of a fee of the franchisee and other consideration are discussed. It is essential to ensure the terms of franchisee fee mentioned as per the understanding between the franchisor and franchisee in the agreement.
The most significant benefit of a franchise is that the franchisor would help with the operation of the franchise unit based on their experience and expertise.
Goods or services offered by the franchisee:
The details of goods and services provided by the franchisee by their requirement to exclusively purchase products or services from the franchisor.
It is required to maintain the accounts and other details as per the requirement of the franchisor. Also, the element to operate the franchise unit as per the standards of operations fixed by the franchisor is essential.
Advertising and Brand Promotion:
Franchisors typically spend significant resources for the promotion of the brand. Hence, the responsibility of the franchisor concerning spending for franchisee and requirement of the franchisee to contribute to brand building activities is mentioned clearly in the franchise agreement.
Training, Supervision and Support:
Franchisors provide the necessary training, supervision and support to franchisee units for a certain amount of time or regularly. The responsibility of the franchisor concerning training, guidance and support are mentioned in detail along with the requirement for the franchisee to provide support for the franchisor for conducting such activities.
Use of Trademark & Intellectual Property:
One of the essential elements in this agreement is the right to use of trademarks of the franchisor. The franchisor must have registered the trademark and have exclusive rights for the use of the same. It must state the words, marks or symbols for which the trademark is registered.
Term of Agreement:
The franchise agreement must clearly state the terms of the franchise agreement, its provision for renewal and the effect of termination, etc.
Governing Law and Dispute Resolution:
It should mention the governing laws and jurisdiction for the operation of the franchise agreement. It is best to agree on alternative dispute resolution mechanisms like arbitration, conciliation or mediation, in case of dispute to ensure speedy and cost-effective resolution of any dispute.
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