A franchise agreement between Franchisor and Franchisee is a formal, binding contract. A franchise agreement, therefore, allows a franchisee the right to use the franchisor's process, proprietary logos, to run a franchised business. Therefore, the franchise arrangement in which the franchisor gives the trade name or business system to another person/entity. The contract specifies the brand name to be used, the duration of the franchise agreement, the clauses dealing with penal provisions, varying from fines, compensation, franchise cancellation. There has been robust development over the previous decade in the Indian franchising industry. Despite of the financial subsidence, the yearly franchising business development rate in India has stayed positive and is as of now at 30%-35%.
Advantages of Franchise Agreement
Business privilege: A franchise agreement gives access to the trademarked business logo, the products and all of the marketing expertise, which a franchise has to offer. A franchise agreement has the advantage that it legally allows the individual/entity to use a part of the business plan a registered trademarked business name and logo.
Brand Control: After signing the contract, the franchisor will be able to clearly define the terms and conditions of brand use, fines and rules and regulations.
Importance of quality franchise agreement
The quality of franchise agreement could be tested on different parameters including: clarity in the specified reason, comprehensive/loophole free character, and univocal, arrangements/terms/conditions with no extension for inconsistency, the way of presentation, and enforce ability. A franchise agreement is an agreement that characterizes their relationship, rights, and responsibilities between the franchisor and the franchisee.
Due to the inalienable business and administrative complexities in such arrangements the quality is significantly more important in a franchise agreement. A quality franchise agreement should create a hidden productive relationship between the franchisor and the franchisor
Key Points in Franchise Agreement
- Reimbursement Provisions: Be vigilant about the loss or harm not caused by you or your representatives' actions. You may ask for dialect that does not require you to reimburse the franchisor in the case, if you follow the methodology and arrangements of the franchisor.
- Advertising: Arrangements that require you to spend a dollar amount or some percent of your sales on advertising might collapse in the midst of your initial few years of operation.
- Restrictions on the products you want to sell.
- The Transfer and Assignment Section Be certain that this section is carefully audited by your attorney and that you know your responsibilities and rights.
These are just a few parts of more important cases that you need to negotiate as you make franchise agreements. Make sure you fully understand your responsibilities and are in accordance with the last franchise agreement before you sign on the "dotted line."
A franchise agreement includes
The franchise agreement is a franchisor-franchisee arrangement. It is mandatory to go through the FDD (Franchise Disclosure Document) before signing the franchise agreement. The FDD provides clear information on what could be anticipated from the settlement, the franchisor and the franchisee's name, the type of franchise being purchased, details of the franchisor's past execution with the project, the region, promotion and publicizing strategies, the kind of assistance that would be provided to the franchisee and other important data.
There are a few things that you need to concentrate more on in the franchise agreement. The underlying costs, the commitments of the franchisee, the litigation, the obligations of the franchisor and the revenue claims are few of those aspects. You need to learn more about the financial performance of the business in order to get a clear picture of this document. A good franchise agreement will contain all of these and many more that will make your relationship with the franchisor transparent.
Points to check before signing the franchise agreement
The franchise agreement is an absolute business agreement between the two parties, the franchisee and the franchisor. Not all franchise agreements are indistinguishable, but they contain similar points, few of which are listed below:-
Domain Guidelines- Certain regions are assigned in which the franchisee can work together.
Charges Payable to the Franchisor- This incorporates the aggregate investment, fee for the franchise, and when to pay the eminences.
Services provided by the Franchisor- Training 7 supports, promotes duties, and the franchise's products and services.
Renewal of Agreement- Here is defined the specific time frame of the agreement, as well as the details of the renewal. Duration is between 5 and 20 years somewhere.
Publicizing And Promotions- The franchisor should promote the content, appearance, and recurrence of publicizing performed by the franchisee.
Transfer Rights- Franchisors typically hold any authority needed to endorse the terms of any exchange and transfer. Franchisors can agree that they have the right of first refusal or of purchasing a franchise back.
As franchise agreement is the franchisor-franchisee pairing contract they usually suggest that an experienced specialist should be hired to audit the franchise agreement. An attorney who is inexperienced with the laws will not meet all the criteria to ensure that you completely understand the points of interest covered in the franchise agreement.