A franchise agreement is a legal proceeding in which a franchisor highlights specific conditions for a franchisee. This agreement provides the right to the franchisee to utilize any resources, trademarks and branding designated by the franchisor.
It is required to legalize the issuing of rights to a franchisee. This is a crucial agreement when two parties enter into a franchise system. This agreement helps in eliminating any risks that the franchisee could pose to the franchisor.
This legal document should mention the clauses and terms that the franchisor needs the franchisee to abide by. The agreement should be legal-sounding and acceptable by the franchisee. This will avoid any conflicting situations in the future.
What Is a Franchise Agreement?
This agreement serves a critical role in building a healthy relationship between franchisor and franchisee for the long-term. It helps in avoiding arguments as everything is already mentioned in the agreement.
It provides the legal right to a franchisee to sell the products and services and contact the resource management, which belongs to the franchisor.
The franchisees will work on their establishments and abide by the terms mentioned in the agreement. A franchisee should always consider this agreement as a crucial part of starting a business.
They need to negotiate the terms which promise the delivery of items that the established franchise requires. This creates a sense of reliability between the franchisor and the franchisee.
Being negotiable, the franchise agreement highlights the prices of the products. This agreement creates a sense of responsibility in both parties as they tend to be fair regarding the deal.
Franchisees might have to pay specific on-going fees if any mentioned in the agreement. A legal and acceptable agreement is required to ensure the acceptance of both parties. The agreement should contain proposals which meet the individual needs of both parties.
This could be made easy with a smart franchise agreement template which could help in customizing the clauses.
Types of Franchise Agreement
Franchise agreements can be classified into different types based on the number of arrangement units provided to a specific franchisee and accordingly the permission for various rights given to that establishment. These types are listed below.
Singular Setup Franchise Agreement
This agreement designates the franchisee the rights to set up and handle only a single franchise unit. This is a widespread agreement as it will enable newbies to explore the franchise.
The franchisees can upgrade to an expansion of their business if the situation seems prospering.
Multi-Unit Franchise Agreement
A multi-unit agreement provides the franchisee with the exclusive rights to develop multiple franchise units.
The units may be spread in different areas, far from each other. This agreement might accompany a deadline issued by the franchisor, relating to the establishment of a number as mentioned earlier of units.
Area Development Franchise Agreement
This agreement calls for the franchisee to set up multiple units at a particular area. The franchisor will not allow any other party to set up their franchise in that specific area until the agreement ends.
This agreement provides exclusive rights to develop a franchise in a territory unique to a single party.
Master Franchise Agreement
This agreement offers almost all the rights which cover some of the franchisor’s rights as well.
Along with the right to set up a franchise in a unique territory, this agreement also allows the franchisee to sell franchises that are established by him/her. This designates the franchisee as a franchisor for a specific area.
These different types of agreements require a smart negotiation of the terms and conditions. CocoSign helps you by providing a sample franchise agreement which clarifies the presentation of these various agreements.
What Are the Essential Elements of a Franchise Agreement?
The franchise agreement involves the presence of specific nominal terms which are required for the smooth functioning of a healthy relationship between the franchisor and the franchisee. These terms are listed below.
- Details About the Validity: This includes the period for which the franchise agreement is active and the rights that will be offered to the franchisee regarding further agreements after the end of the agreement.
- Details of Fees: This section instructs the free pattern that will be followed. This pattern includes the initial charges for purchasing the rights and the charges for continuing the agreement after the agreement ends.
- Assigned Location: Certain franchisors avail a particular territory in which the franchisee can establish and develop the business. These locations might be unique to a single franchisee, depending upon the type of agreement.
- Training Support: The franchisors generally avail training opportunities for the franchise staff, which include different aspects such as field training, quality assessment and many more.
- Rights to Use Branding Symbols: A franchise agreement also highlights the rights that are provided to the franchisee, which consist of the use of various branding techniques including trademarks, symbols and franchise manuals.
- Insurance Requirements: The franchisor mentions beforehand the minimum insurance that a franchisee needs to have before establishing a franchise. This is done to ensure the safety of the funds invested in the products and services delivered.
- Terms of Advertisement: The agreement mentions the charges that the franchisee will have to pay to advertise his/her business with the franchisor. The costs are cut according to the negotiation between both parties.
These fundamental elements should be critically analyzed to present the best agreement terms for both parties.
Drawbacks of Not Participating in a Franchise Agreement
A franchise agreement is considered very vital in the modern era. If you are thinking of avoiding spending time on agreeing, think again! You might get yourself knocked out.
- An agreement should be made whenever investing a large sum of money. Without a franchise agreement, you might face fraud and false allegations. And the worst part is, you won’t have any written piece of evidence to fight within the front of the jury.
- The franchisee might face a loss if the franchisor decides to increase the price of the stock. This could be avoided only if an agreement is signed beforehand by both parties.
- The franchisor might feel threatened if the franchisee excessively uses the resources and branding symbols. This could lead to conflicts between both sides, thus disrupting the relationship for the future.
- There might be arguments related to the continuing fee. These can be avoided only when the terms of payments are aforementioned in a legally signed franchise agreement.
A franchise agreement is necessary to avoid any conflicting situations between both parties. CocoSign offers a free franchise agreement template, which ensures the building of trust and reliability between both parties.
CocoSign considers all the aspects and provides well-designed franchising agreement examples to offer the best negotiations possible. These agreements can be customized according to the particular needs of different customers.
We also provide franchise agreement template free download links for customers who wish to understand the terms and conditions in a better way. We offer to help you create your personalized franchise agreement which will suit your unique needs.
CocoSign represents a wide collection of legal templates covering all types of leases, contracts and agreements for personal and commercial use. All legal templates available on CocoSign shall not be considered as attorney-client advice. Meanwhile, CocoSign shall not be responsible for the examination or evaluation of reviews, recommendations, services, etc. posted by parties other than CocoSign itself on its platform.