A franchise Agreement Format can only be understood, once you understand Franchise Agreement meaning. In short, a legal agreement wherein an existing company agrees to lend its name, operational model, and necessary support to another party so that it may launch and operate a comparable business in return for a fee and a portion of the profits made.
The specific obligations and compensation that each partner is to meet are put across in the franchise agreement. It establishes the conditions and terms for both parties and binds them.
Why the need for a Franchise Agreement in India?
The purpose of this agreement is to safeguard the franchisor’s intellectual property and guarantee uniformity in how each of its licensees represents the franchisor’s brand.
The franchiser must evolve the brand and its consumer offering even though the connection is formally documented in a contractual agreement that is intended to last for at least 10 to 20 years to remain competitive.
The agreement must also be adaptable enough to permit the franchisor to make changes that take into account judgements made in response to the particular requirements of franchisees.
The requirement that franchisees operate their independently-owned businesses daily by continuously upholding brand standards is unaffected, nevertheless.
In short, a franchise agreement covers details of:
- Overview relationship between both parties.
- Length of the agreement
- Fees (franchise fee & royalty fee) applicable to the franchisee.
- In which location the franchisee can operate
- Selection of appropriate location
- Which IPs can the franchisee use
- Audit and bookkeeping by the franchisee.
Franchise Agreement Format Template
What you should include in a Franchise Agreement Format?
The new franchisor who is keen on developing his franchise model is constantly looking for a standard template that may also come in handy in preparing his Franchise Agreement Format.
The search continues as the franchisors looks at several business templates and try to build one common format which suits their business. The approach is tedious. Therefore, before the actual franchise agreement is in use it goes through several iterations which stretch to several weeks.
There is no standard franchise agreement format because the terms, conditions, and methods of operations of various franchises vary widely depending on the type of business.
For example, the franchise agreement format in Indian restaurants would be different to another agreement format in India.
- Location/Territory: The territory in which you will operate and outline any exclusivity rights you may have.
- Operation: Details how franchisees are expected to run their units.
- Training and ongoing support: Franchisors offer training and training programs for franchisees and their staff. Training may take place at corporate offices or out in the field. All ongoing administrative and technical support is in the agreement.
- Duration: Length of the duration of the franchise agreement.
- Franchise fee/investment: Initial franchise fee that grants the franchisee the right to use the franchisor’s trademark and operating system.
- Royalties/ongoing fees: Franchisor’s royalty structure. Usually a percentage of total sales, which is often paid on a monthly/yearly basis.
- Trademark/patent: This section will outline how a franchisee can use the franchisor’s trademark, patent, logo and signage.
- Advertising/marketing: The franchisor will reveal its advertising commitment and what fees franchisees need to pay towards those costs.
- Renewal rights/termination policies: The franchise agreement will describe franchisee renewal or termination.
- Exit strategies: Every franchise has its resale policy. Some allow franchisees to sell their franchises at their discretion. Other agreements include buyback or right of first refusal clauses.
The franchise agreement will go into detail to explain more about the franchisee/franchisor relationship. It will include detailed information regarding proprietary statements and outline things like site maintenance and upgrade requirements.
Common Terminology in Franchise Agreements
- Grant – This refers to the non-exclusive rights that the Franchiser grants to the Franchisee for the latter to operate the former. The Franchisee will have control over the Franchiser to run its system and activities. This is except for the restricted territories, until and unless the Agreement comes to an end after the valid period.
- Terms – are the Agreement’s terms and conditions. For instance, the Agreement’s start date and its duration of validity. In addition, both parties may terminate and renew the Agreement.
- Consideration – refers to the reason the franchise decides to give the franchisee a non-exclusive licence for a certain number of years. The element differs by the Agreement’s terms and circumstances.
- Training & Operational Guidance – imply that the Franchiser trains the Franchisee and offers operational support by the Agreement. Additionally, the latter will assist the Franchisee’s staff in comprehending the essence of the company and how to operate within it.
- Operations of Franchised Business – signifies what the Franchiser and the Franchisee are to do under the terms of the Agreement. Additionally, it covers the services provided, adjustments to the system, transfers of monies, etc.
- Confidential – indicates all of the crucial knowledge that is secret. Information about the company that has the Franchiser’s approval is completely confidential.
- Advertising Rights – With the franchiser’s permission, the franchisee can promote the company. However, the promotion should be to the franchiser’s benefit, as the advertising for the Bata franchise. They advertise extensively on television, in pamphlets, etc.
- Marks – The Franchisee receives the right to run the franchisor’s business and the ability to make use of the trademarks by the terms and conditions of the Agreement.
On the contrary, if a consultant is engaged at the beginning of building a franchise model it will save time and effort in preparing the Franchise agreement format.
Likewise, the Franchise consultant will bring in several years of consulting experience across industries. Also he understands the current franchise model. Therefore, this will benefit the franchisor tremendously. Furthermore, the franchise agreement will cover all the necessary covenants applicable to a particular business in the franchising industry.
The franchise agreement word format will also cover specific terms such as franchisor grants, franchisee rights, use of franchise systems and Intellectual property.
Therefore, the best-detailed format will go a long way in establishing a healthier and more successful relationship between the franchisor and franchisee.