Franchise Agreement – 10 Key Elements Infographics

24Apr

A franchise agreement is all about the promises, rights, and responsibilities that the franchisee or franchisor owes to the other. Franchising is a business model, which is specially designed to distribute products/services in a disciplined manner. Its primary characteristic is to enable the franchisee to run a successful business in exchange for complying with the defined operational standards. In doing so, the vitality of a franchise concept depends mainly on its uniqueness and policies. The agreement takes care of the quality of the franchisor’s branding supporting recruitment, training, site selection, the supply chain, and marketing.

The franchise agreement determines the contractual aspect of a franchising infrastructure, which is mentioned clearly in the disclosure document. The following are the 10 most important elements in the franchise agreement, which deserve special attention from both the franchisee and legal counsel before the agreement is signed.

key elements of franchise agreement infographics

Here are a few more bonds in franchise agreement –

Right of first refusal

In most of the agreements, the franchisor has the option to exercise his/her interest whether to purchase or refuse the franchisee’s business. This is particularly with the case, where the franchisee seeks to transfer the business or purchase the franchisee’s assets when the franchise agreement expires or is terminated.

Business relation between the parties

Franchisees are always considered as independent contractors. The relationship between a franchisor and franchisee is a complicated one and it might have several implications. This independent contractor is neither the franchisor’s employee nor the agent. Instead, the franchisee is in business for themselves. They pay their own taxes. They have got the liberty to hire anyone. They are the employers to their staff and generally operate independently of the other in carrying out the contract between them.

Indemnification

Every franchisee agreement comes with an indemnification bond, which means that the franchisee is entitled to any kind of reimbursement for any losses. These bonds, unfortunately, are no good to the franchisees. Having said that, it’s the franchisee who is responsible for the day-to-day operation and maintenance of the business and not the franchisor.

Conclusion

So, those were 10 important elements of a franchise agreement. It is crucial that the contract ethically acknowledges all aspects of the franchisor’s intellectual property and other proprietary rights. Both the parties should ensure that these are properly protected and licensed to the franchisee.

It should also be noted that when drafting such contract, the main objective should lie on maintaining a fair balance between the interests of the franchisor and those of the franchisee, taking into account the core obligations of the contract. Sparkwork provides the bleeding edge franchise management software solutions to franchises from all walks of the industries. Click here for a free demo.

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