It’s very common these days that when a business analyzes it’s consumers are growing rapidly, the next time to do would be allowing others to use company’s trademark and services and open branches in various locations. This is what we call a franchise and the best example is fast food chain McDonald or KFC. If you have the resources and you are willing to open a franchise of KFC, you just need to enter in an agreement with the company’s authorized personnel and you can open your own KFC wherever you want. Because the original company is allowing more than one party to use their name and trademark, it’s important not to allow individuals take advantage of the situation and somehow ruin company’s goodwill in the market. This is where a franchise agreement company handy as it allows certain rights to the franchisee while ensuring that nothing is done without authorization or permission of the franchiser.
A franchise agreement is usually different from any other business agreement as it includes long list of terms and conditions or things allowed by the owner of the company that franchisee can do. This also means the original owner can decide how the franchisee will conduct business along with minimum or maximum number of employees, level of services and location of the franchise. Most importantly, the reason for allowing someone to use your company’s trademark is to get extra income which comes from the franchise as commission and this agreement clearly states how much percentage of the profit the franchisee has agreed to pay to the owner and what services he can attain in return of this amount.
Franchise Agreement Templates
Here are some Franchise Agreement Templates to download quickly.
Here are some guidelines to prepare a franchise agreement:
Introduction to both Parties:
Same like any other contract, this agreement will also start with introduction of each party involved. A franchise agreement is mostly in between 2 parties where 1st party is the owner of the trademark and 2nd is the one getting legal rights to open the franchise.
Nature and place of the Business:
Here you need to clearly mention what kind of business it is and how much of original business will the franchisee be authorized to conduct. For instance, if this agreement is for fast food chain, this part will mention what food items will be sold by the franchisee. It also confirms the location where the franchise will be opened which means the owner has the opportunity to verify the physical location of the franchise and change it in case of conflict.
This part will include the amount of business that the franchisee is allowed or authorized to conduct. Many companies let other open franchises of their businesses but they don’t allow anyone else to produce their products and retain the sole manufacturing rights. A franchise agreement should clearly mention if the franchisee is allowed to manufacture the products himself or he will get any or full help or assistance from the owner. The time period or duration for which the franchise is authorized to conduct business is also mentioned here and it can be anywhere between 1 year to 10 years depending on nature of the business and preferences of both parties.
Termination of the Agreement:
Just like any other agreement, there should be a part that indicates the factors that will result in breach of the agreement. What the franchisee is allowed to do and what he is not allowed to do in any situation is clearly stated here so both parties understand the steps that will result in termination of this agreement. It would be a great idea to also clarify what will happen if any party breaches the agreement i.e. immediate lawsuit or mediation.
Making the Agreement Authenticated:
All of this work of drafting this lengthy agreement is worthless unless both parties put their signature at the end. Usually these agreements are not solely signed by the involved parties but there are 2-3 witnesses who confirm both parties had the time to go through entire agreement and they agreed to sign it without any pressure.