Franchise agreements play an important part between a franchisor and a franchisee. It is the legal binding of the parties. With the increasing number of franchises, international and national, understanding the franchise agreements is equally important for the same.
It is important for a franchisor and franchisee to understand why does one need franchise agreements in place. Franchise agreement further helps in avoiding franchise disputes. The agreement also contains the day-to-day operations of the franchise with maintaining the standards of the business.
Every franchise business is different vis-à-vis the industry; therefore, it is necessary to understand the suitable franchise agreements for business. There are mainly 4 types of franchise agreements a franchisor and a franchisee need to understand – namely:
I) Single-Unit Franchise:
A single unit franchise is when the franchisor gives the franchisee the right to open a single unit of their franchise. It is to understand the market dynamics and capabilities of the franchisee.
II) Multi-Unit Franchise Agreement:
In this type of franchise agreement, the franchisor gives the franchisee the permission to open and operate more than one unit of a franchise business. The franchisee is told to develop a few pre-determined numbers of units to be set up. In case he/she fails the franchisor can opt for another franchisee.
III) Area Development Franchise Agreement:
This type of franchise is similar to Multi-unit franchise. The only difference is the franchisor grants an exclusive right to develop franchisees in that location. No other franchisee is given permission to set up a franchise there. Therefore, no other franchisee is given permission in setting up a franchise there.
IV) Master Franchise Agreement:
This type of franchise is a lot bigger than the area development franchise. Here, the franchisor gives the sole rights the franchisee not only to open a set number of units, but also the franchisee can give out franchises within their geographical location. It is more or less like a franchisor in one particular area geographically.
From the mentioned types of franchise agreements, we can understand the types of franchise format. Each of them requires a different type of franchise agreement between the franchisor and the franchisee. They also have to take note of different types of franchise laws applicable and how do these laws have a direct or an indirect effect on the franchises. Here it is important for a franchisor to take help from a franchise consultant and understand all the intricacies of the same.
As the functionalities of every franchise are different it is important for a franchisee to seek guidance from a franchise expert. Sparkleminds is your answer here, a franchise expert in India with over 20+ years of experience and has helped 1000’s of brand expand via franchise in various categories of business at a successful rate.
Sparkleminds is a leading franchise development company in India, they have been in the industry for over 20+ years and have helped 1000’s of brands across industries establish in India by guiding them through the franchise route.