There are many organizations around the world that develop a sustainable brand name and then convert the business into a franchise. A franchise is something that you can join in your area. For example, if a company starts a fast-food franchise, and you realize that your town doesn’t have that particular fast food restaurant, you can join the franchise and become the franchisee responsible for owning and operating the location in your town. But before you do that, you will need to sign a franchise agreement.
A franchise agreement format is a legal agreement between a franchisee and a franchisor.
Both the franchisor and franchisee must sign the document. Using the example above, this written notice explains things like how the franchisor grants the franchisee the right to use their brand in their hometown in exchange for a franchise fee. It should explain the brand standards, the franchisee signs, purchase price, and other rules for a competitive business. It might list things like when prior written consent is required for business changes or where the
franchise location will be. This document should easily answer any legal questions.
With a franchise agreement word format document, you can provide yourself with the legal protection you need in the event that something goes wrong. For example, if you are the franchisee, you need to know what your legal rights are. You need to know how you can use the brand name, under what circumstances you can use the brand name, where you are allowed to operate and what changes you can make. As the franchisor, you also need to know what your responsibilities are, how often you might conduct a site inspection or verify records, and what training and ongoing support you are responsible for providing. Both parties need to know what they can and cannot do so that they stay on the right side of the law.
You should always use a sample franchise agreement pdf or similar franchise agreement that you have drafted in any scenario where you are the franchisor or the franchisee. When joining a franchise you need to know what your responsibilities are, and what you can expect from the franchise.
There are different types of franchise agreements. The most common is a single-unit franchise. If you consider the example above, opening a fast-food restaurant in your hometown would be considered a single unit franchise because the franchisee is opening one unit.
There are other situations where a franchisee wants to open multiple units. Perhaps they opened their first unit in their hometown to great success, and now they want to open two more in nearby cities. These new situations would require a multi-unit franchise agreement.
Sometimes area developers want to develop an urban region with an agreement ahead of time to a certain number of franchise locations. When this happens, they sign an area development franchise agreement.
You don’t have to invest a great deal of time or money in creating your agreement. You can use a sample franchise contract for free or draft one based on a free franchise agreement template. Most online templates will provide all of the necessary sections, and it’s much easier to start with a sample that you can add to or subtract from.
If you plan on writing your own franchise agreement, just make sure you have the most important sections:
Start by defining the relationship. You have to describe the agreement between the franchisor and the franchisee. This is where you list information for both parties, including contact information and full names, as well as the overall responsibilities of the franchisee to manage the brand.
Then, you have to explain the duration of the agreement. Most of the time, franchise owners provide the franchisee with an opportunity for five years or ten years. One of the most important parts of your franchise agreement is the duration or the length of your business relationship. If both parties want to work together and everything has run smoothly, you can also extend that duration or include a section that talks about renewing the agreement at the expiration of the original duration.
The franchisee is obligated to pay a specific amount to the franchisor. In this section, you talk about the initial fee that the franchisee pays to join the franchise or premium payments and the ongoing fees they will pay to the franchisor throughout the duration of the relationship.
The next section should explain the business operations. This needs to be a very comprehensive section where you talk about the level of support that the franchisor provides as well as the commitments of the franchisee. You can cover activities like buying goods for the franchise, adhering to operational standards, account management, and so on.
A franchisee is responsible for identifying a good location for the franchise. Usually, they have to disclose their preferred location to the franchisor for approval before the agreement starts. Every aspect and description of the site must be written down in this agreement so that it can get approval from the franchise.
Most franchisors provide training and support to their franchisees. Usually, training takes place before the franchisee takes over a new site and continues at the headquarters. This type of training and support might cover product quality, management, supply chain issues, and so on. In your agreement, you must specify the training time frame and the work schedule, setting forth when training is to take place, where, and how often.
Owning a franchise means access to the intellectual property associated with the brand name. However, there might be limits, and these must be specified in the franchise agreement. The agreement will stipulate how a franchisee can use the brand’s intellectual property, what rights they have to modify things. There might be limits, such as geographical restrictions.
Franchise agreements have to specify what minimum insurance requirements the franchisee has to honor. Usually, the franchisee has to have minimum insurance before they open the franchise and throughout the duration of the contract.
Franchisees and franchisors usually agree ahead of time to what types of record-keeping both sides must maintain. The franchisee usually has to maintain records and agree that the franchisor can audit those records at any time
This is the section where you discuss the potential renewal of the agreement. All franchise agreements have a termination date. So, if your agreement terminates after 10 years, you can include a section that stipulates the franchisee can renew or discontinue the agreement. You can also include the reasons why a franchisor can terminate the agreement prior to the end of the term. This might include the types of serious violations that could result in sample franchise contract termination, the type of written notice that must be provided to the franchisee, and any penalties that must be paid.
Your final section should extend to things like reselling the franchise, successor rights, indemnification, transfer rights, local advertising requirements, personal guarantees, general releases, dispute resolution, and rights of first refusal.
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