Franchise agreement – Introduction
With the advent of globalization and liberalization, businesses have taken many business models for sustenance and prosper. Franchising has been one of the profitable business models that involve the domestic players as well as foreign businesses.There are various types of franchising systems are in place, which includes the dealer arrangement, marketing arrangement, trademark-usage arrangement, product distribution arrangement, manufacturing arrangement, etc.
Franchising can be regulated by the negotiation, drafting and agreement on the terms of the contract created by mutual understanding of the franchisee and franchisor.
A Franchise Agreement is a legal document mutually agreed by the franchisee and franchisor, which binds both on the franchisor and franchisee. Itcreates the legal obligations to be fulfilled by both the franchisor and the franchisee, and also the clear expectation of the franchisor from the franchiseefor running a mutually beneficial business.
Basic Requirements of Franchising Agreement:
Basic features of the finely crafted franchise documents includes the following features, but not limited to:
- Nature of the relationship between the parties, obligations and the business methodologies
- Term of the franchise agreement including the termination details, succession details, etc.
- Cost associated with the franchising, including the fee to be paid at the starting point and the fee that needs to be paid for continuing the franchise.
- Since each of the franchisors can provide franchising rights to more than one franchisees, the agreement must take care in drafting the regulations related to territorial franchising rights, so that one franchisee does not infringe the rights that of the other. It must define the limits of the territory assigned and the violation of territorial rights
- Most of the time, franchising involves a reputed brand name. Hence, the agreement should define the obligations related to the marketing / advertisement of the brand name in the given territory, by the franchisee.
- Process for selection and approval of the sites for running the business and obligations related to the creation designs & brands in the said sites to the standards set by the franchisor
- Usage / licensing of intellectual properties including the trademarks, know-hows, trade secrets, business-specific processes and systems, and other IP rights to the franchisees and the limitations to using the same
- Training associated with the businesses
- Other clauses including governing laws / principles, termination, indemnification, dispute resolution, payment terms, rights to exclude, etc.
Advantages of Franchise Agreements:
- Being a legally valid document, it binds all the parties binding and requires adherenceto the proviso of the agreements
- Helps in enforcing the obligations set-out in the agreement in a mutually agreeable way
- They offer to enforce the terms of the contract without any misunderstandings that lead to a longstanding relationship between the parties
- Enables to avoid the complex and costly litigations in case of a dispute
- Serves as legally valid evidence, since the terms and conditions are meticulously drafted and agreed beforehand
IPLF and Franchise Agreements:
A franchise agreement must be crafted to the mutual benefits of both the franchisor and the franchisee, which should also be valid to be enforced. Further, they should be crafted in a way that improves the understanding and to avoid costly disputes.Further, there are various clauses to be included in the franchise agreements based on the business obligations, which also requires legal prowess to draft a comprehensive agreement.
Our team comprises highly skilled and trained legal professionals to assist in the negotiation and drafting of various types of contracts including franchise agreements, which are not only mutually beneficial to all the parties involved but also protect your business interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.