Overview

A legal, binding contract between a franchisor and a franchisee is legally known as a franchise agreement. The function of a franchise agreement is to give the franchisor the right to use the franchisor; Systems and Proprietary Marks to Manage a Franchised Business. In general terms, it is an agreement in which a well-established business (franchisor) decides to lend its brand, operational model and other necessary support to another party called a franchisee. The franchisor allows the franchisee to run a similar business and share in the revenue generated in exchange for a fee.

The agreement contains professional and legal terms and conditions that both parties will share in their term. A franchise agreement helps maintain a cordial relationship between the franchisee and the franchisor. The agreement includes the brand name, the length of the franchise agreement and the amount of the fee, which is related to penal provisions, compensation and cancellation of the franchise. The Indian franchise industry is experiencing tremendous growth and development.

What is included in franchise agreement?

A legal document between the franchisor and franchise that defines the roles and responsibilities of both parties is known as the franchise agreement. It is necessary to go through a franchise disclosure document (FDD) before signing a franchise agreement. The FDD also accurately mentions the minute details of the agreement. It tells what one can expect from a settlement, mentions franchisors and franchises & rsquo; The type of franchise being purchased is information regarding the project, region, promotional strategies and previous execution of the franchisor with assistance. Franchises may need to grow the business.

The franchise agreement is a legal proof of a broad agreement between two parties. This includes information such as franchise commitments, litigation and underlying expenses, income claims. To understand this document clearly, gain a sound knowledge on the financial condition of the business.

Elements of a franchise agreement

All franchise agreements require the franchise to cover insurance to cover their business functions.

• Relationship Profile

  A franchise agreement covers the names of those who are included in the agreement, ownership of intellectual property. The agreement also talks about the franchise's obligations to manage its business according to the standards provided by the franchisor.

• Term of agreement

  This section describes the course of the franchisor-franchise relationship. Initially, the franchisee is legally asked to pay an initial fee to be a part of the relationship which is further pursued by a continuing fee to maintain its status.

• Location and Territory

  The franchise agreement also covers the space and area allotted for its franchise. However, the space allocated differs in each agreement. The franchise agreement defines two types of areas:

  1. Special Area

  2. Non-specific area

  Specific Area

  Only one franchise is allowed in the exclusive zone area. The franchisor does not have the right to sell more than one franchise in that particular region. The assigned area will remain exclusive to that particular franchise only.

  Non-exclusive region

  In a non-exclusive area, the franchisor has the right to sell more than one franchise in that particular region.

• Intellectual Property Use

  Trademarks, patents and manuals are also part of the agreement, which is given by the franchisee to the franchisee. The agreement also states the expected use of trademarks, patents and manuals.

• Advertisement

  Franchisors describe franchises on the efforts put in to advertise the brand.

• Insurance
• Training

• This section of the agreement mentions training provided by the franchisor including seminars, meetings, etc., which the franchisor will ask the franchisee to attend.

Benefits

A franchise agreement gives you access to the trademarked business logo, products, and all kinds of marketing expertise that a franchise can offer you. The franchise legally allows you to use a known trademarked business name and logo as part of a business plan.

Once legally entered into an agreement, the franchisor lays down the terms and conditions regarding the use of the brand, fines may be imposed and rules and regulations may be followed.

• Business Privileges
• Brand Control

Type of franchise agreements

This is the traditional and most common form of franchising. Such an agreement issues rights and obligations in relation to the establishment of the franchise. It also explains the operation of the franchise. However, franchisees are responsible for investing in their capital and using managerial skills to grow their business.

The franchisor has the right to issue more than one franchise unit to the franchisee, in other words, the agreement permits operation and installation of more than one franchise unit. But a multi-unit franchise requires smart financial capability that serves as an important asset in business development.

This type of agreement empowers the franchisor for a specific country, region, or continent, therefore empowering the master franchise to provide the full range of franchisor's products and services. In addition, the master franchise also has the right to recruit other franchisees. In this way the master franchise becomes a franchisor for franchisees who connect to the system through their master franchise.

• Single entity franchise agreement
• Multi-unit franchise agreement
• Master franchise agreement

Points to check before signing franchise agreement

Specific areas are allocated in which franchises can operate jointly.

This includes accumulated investment, franchise fee expense, and when the funds are to be repaid.

This includes necessary training, promotion of duties and products and services provided by the franchise to the customers.

The specific time period of the agreement is mentioned and includes information related to the renewal.

The franchisor must provide promotional material, presence, and iteration implemented by the franchise.

Franchisors usually maintain whatever is required to support the terms of any exchange and the terms of the transaction. Likewise, franchisors determine whether they have the privilege of first refusing or buying back a franchise.

• Domain Guidelines
• Fees payable to franchisor
• Service offered by the franchisor
• Renewal of agreement
• Promotions & Promotions
• Transfer Rights

Franchising Laws

This Act defines the law regarding the fundamental aspects of the agreement between the franchisor and the franchisee. The Indian Contract Act finalizes principles such as proposal and acceptance, consideration, breach of contract and various related activities.

Any arrangement in relation to the production, distribution, acquisition, supply or control of goods which may be to create an adverse effect on competition within the country is prohibited under this Act.

This Act is formulated keeping the interest of consumer’s in mind. The act empowered consumers to file complaints against franchisees and franchisors. In case of any defect in the product or service, the consumer can entertain the right to file a complaint against the entity. The Consumer Protection Act protects consumers from unfair trade practices.

The act comes into action when there is foreign exchange and foreign property is involved. International brands like Reebok, KFC, Nike control and manage their franchise in India with this act. The Indian government is reforming the laws that will help international brands to open and manage their franchise in India.

• Indian Contract Act, 1872
• The Competition Act, 2002 is
• Consumer Protection Act, 1996
• The Foreign Exchange Management Act, 1999 is