About Franchise Agreement

One of the business strategies to expand in the market is through selling the idea that has been profitable to you to others. Letting out your franchisee is selling business models and products and services through a specific layout.

The legal way of doing so is through a Franchise agreement which covers all the aspects of letting out your franchise model to your business partner within a stipulated framework to run and operate your unit.

Generally, a unit franchise is let out singularly, however, there is scope for opening multi-unit franchise units and master franchisees which are executed through separate agreements. There are three types of agreement that are usually entered into for letting out franchisees:

1. Unit Franchise agreement

2. Multi-Unit Franchise agreement

3. Master Franchise agreement

These differ according to each business and their respective requirements.

What are the components of a Franchise agreement?

1. Franchisor and Franchisee details - The details of the franchisor and franchisee must be mentioned in the initial Paras of the agreement to erase any scope of ambiguity.

2. Consideration -The monetary terms must be clearly demarcated and drafted so as to avoid future disputes with regard to business transactions.

3. Obligation of the Parties - The task to be performed by each of the parties should be elaborately mentioned, leaving no scope of doubt for the work assigned by the franchisor to the franchisee and vice versa.

4. Advertising and brand obligations -The franchisor has to lay down certain brand obligations and advertising clauses for brand promotion which has a process that has to be followed by the franchisee, this often plays a part in business expansion.

5. Intellectual property rights protection - The products and services to be sold are granted protection through this clause, protect what makes your product/service distinct in the market through this clause in your agreement.

6. Term and Termination - The time period for which the franchisee unit(s) is being imparted and the exit clause in case of non-compliance and other terms must be mentioned.

7. Governing Law and Dispute Resolution -The laws applicable and the jurisdiction for the dispute must be negotiated carefully, also the manner of settlement of the dispute and the location of settlement should be precisely mentioned.

8. Assignment - This is a technical clause where careful drafting is required as the assignment of rights of the parties is to be elaborated.

9. Other Legal Clauses - Apart from the standard legal clauses, there are industry-specific legal clauses that are drafted and need expert guidance.

Why is a franchise agreement necessary?

Since it is a legally valid document, the terms and conditions bind the parties to it and thus granting legal

protection to each of the parties.

The set-out obligation in the agreement allows the parties to do business in a mutually agreeable way.

An agreement leads to a smooth transition if the parties are not finding the business mutually beneficial.

The agreement allows a longstanding business relationship, as it cancels any scope for misunderstanding between

the parties.

Saves a lot of litigation costs in the long run as the dispute resolution mechanism is clearly laid down.

The agreement serves as evidence of your business relationship as the verbal details are penned down on legal