Franchise Agreement: How Does it Work?

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Suppose you are about to start a franchise business; you know certain terms associated with it. One of the most important ones being the franchise agreement. It is the first step that you have to follow before buying a franchise.

A franchise agreement is a legal document that binds the franchisor with the franchisee. It outlines the several terms and conditions of a franchisor. In this article, we will discuss how this agreement works as well as the concept of this agreement a bit more in detail.

What is a Franchise Agreement?

As we informed you earlier, a franchise agreement is a document that legally binds both the franchisor as well as the franchisee. Each and every franchise has to follow the specific terms and conditions that are mentioned in this agreement.

This agreement will, in fact, include everything about how a franchise needs to work. It will also contain details about what the franchisee can expect from the franchisor. Any business which meets the definition of the FTC, Franchise Rule becomes a franchise. Let us now discuss how this agreement works.

How Does a Franchise Agreement Work?

As we know, this agreement is a kind of license that establishes the obligations and rights of both the franchisor and the franchisee. In fact, the franchise attorney is the one who guides you in understanding the legal jargon of the agreement and coming to terms with it.

For instance, if you own a hotel franchise, a hotel franchise attorney will provide you with complete legal guidance to safeguard your business. But in all cases, you need to sign an agreement with the franchisor. Here are some of the important aspects of a franchise agreement:

  • Firstly it includes the details of both the parties in the contract. It also contains the various obligations of the franchisee to operate its business by maintaining its brand standards. All in all, it is a complete overview of the relationship between the franchisor and the franchisee.
  • The next important aspect of a franchise agreement is the duration. It mentions the time till when this agreement will be considered to be valid. After the expiry of the term, the franchisee and franchisor can again extend the timeline.
  • At times there are certain agreements made by the franchisors that do not grant an exclusive territory to franchises. According to it, the franchisors should at least mention some specific details about the area.
  • According to the agreement, the franchisors provide support to the franchisees for setting up a successful business. It usually includes training, supply chain, quality control, as well as field and headquarters support.
  • There are certain fees associated with advertising that the franchisees have to pay to the franchisors, which also remains mentioned in the agreement.
  • Several other issues are addressed in the agreement, like franchisee’s successor rights, termination, dispute resolution, resale rights, etc.

Final Thoughts

A franchise agreement is a foremost requirement for a franchisee for setting up his business. Therefore, a proper understanding of all its terms and conditions is essential for the franchisees. An experienced franchise attorney is the one who helps in this regard by providing the necessary legal guidance to their clients.

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