Franchise Agreement
A Franchise Agreement is a contract agreement that formalizes the relationship between a franchisor and a franchisee, wherein the franchisor grants the franchisee the right to operate a business under the franchisor's brand and system for a specified period.
- Context:
- It can (typically) aim to ensuring consistency across the franchise network
- It can (typically) aim to protect the brand's reputation.
- It can outline the duties and rights of both parties, including the use of trademarks, operational procedures, and compliance with the franchisor's standards.
- It can specify financial obligations such as initial franchise fees, royalties, and advertising fees payable by the franchisee.
- It can detail the training and support provided by the franchisor to the franchisee.
- It can be designed to allow franchise owners to benefit from an established brand, business model, and support system while maintaining certain operational independence.
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- Example(s):
- They one at
https://www.sec.gov/Archives/edgar/data/1289729/000119312504087716/dex1029.htm[1]. - A franchise agreement between a global fast-food chain and an individual looking to open a restaurant under that chain's brand.
- A manufacturing franchise agreement allowing a company to produce and sell branded food items using the franchisor's recipes.
- Traditional or Business Format Franchising, Product Distribution Franchising, Manufacturing Franchising, Master Franchising, Area Development Franchising, and Conversion Franchising, each with its own set of benefits and challenges.
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- They one at
- Counter-Example(s):
- A Business Lease Agreement between a landlord and a retail business owner.
- A partnership agreement between two business entities sharing profits without the franchising structure.
- See: Legal Document, Franchisor, Franchisee, Royalties, Trademark, Business Model, Indemnification,The Franchise Rule, Franchise Disclosure Document, License.
References
2024
- (Wikipedia, 2024) ⇒ https://en.wikipedia.org/wiki/Franchise_agreement Retrieved:2024-2-13.
- A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.
Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule. The Franchise Rule requires a franchisee be supplied a Franchise Disclosure Document (FDD) (originally called Uniform Franchise Offering Circular (UFOC)) prior to signing a franchise agreement, a minimum of fourteen days before signing a franchise agreement.
Once the Federal ten-day waiting period has passed, the Franchise Agreement becomes a State level jurisdiction document. Each state has unique laws regarding franchise agreements.
A franchise agreement contents can vary significantly in content depending upon the franchise system, the state jurisdiction of the franchisor, franchisee, and arbitrator.
It overall provides the investor with a product, a branded name and recognition, and a support system.
A typical franchise agreement contains
- Franchise Disclosure Document (FDD)
- Disclosures required by state laws
- Parties defined in the agreement
- Recitals, such as Ownership of System, and Objectives of Parties
- Definitions, such as
- :Agreement, Territory Area, Area Licensee, Authorized deductions, Gross Receipts, License Network, The System Manual, Trademarks, Start Date, Trade name, Termination, Transfer of license.
- Licensed Rights, such as
- :Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard
- Franchisors Services, such as
- :Administration, Collections and Billing, Consultation, Marketing, Manual, Training and Vendor Negotiation
- Franchisee Payments, such as
- :Initial Franchise Fee, Training Fees, Marketing Fund, Royalties, Renewal fee, and Transfer fee
- Franchisee Obligations, such as
- :Use of Trademarks, Financial Information, Insurance, Financial and Legal responsibility
- Relationship of Parties, such as
- :Confidentiality, Indemnification, Non-Compete clauses
- Transfer of License, such as
- :Consent of franchisor, Termination of license, Termination by licensee
- Other provisions
- Governing law
- Amendments
- Waivers
- Arbitration
- Severability
- A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.