Franchise agreement

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.[1] 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.[2]

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

See also

References

Terms and conditions of franchise agreement

  1. "Consumer Information" (PDF). ftc.gov. Retrieved 25 January 2015.
  2. "Buying a Franchise: A Consumer Guide". ftc.gov. Retrieved 25 January 2015.
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