The franchise agreement is the legal agreement that creates a franchisor-franchisee relationship between you and a franchisor. When you buy a franchise, it’s the franchise agreement that will govern and determine your rights and obligations as a franchisee.
The time to review the franchise agreement is before you commit to a franchisor, before you pay any franchise fees, and before you sign any agreements. During the franchise sales process, the franchise agreement will be attached as an exhibit to the franchisor’s FDD and the FDD itself will summarize key franchise agreement provisions, including franchise fees, royalties, ongoing fees, territory rights, renewal terms, personal guarantees, and other critical rights related to your franchise investment.
Before signing a franchise agreement, it’s always recommended that you review the agreement with an experienced franchise attorney. In many instances, your attorney can enhance and better protect your legal rights as a franchisee through a franchise agreement addendum, which your attorney may negotiate before you sign your franchise agreement.
The primary purpose of the franchise agreement is to grant and authorize a franchisee to establish and operate a franchised location or outlet. The franchise rights that are granted from the franchisor to the franchisee include a license to utilize the franchisor’s trademarks, operations manual, training, and ongoing support.
The franchise agreement defines the initial fees that franchisees are required to pay to the franchisor at the time the franchise agreement is signed. The most common initial fee is the initial franchise fee. However, initial fees may also include pre-opening fees that a franchisee may be required to pay to the franchisor for items such as opening inventory and software licenses.
The franchise agreement will define the ongoing fees that a franchisee will be required to pay to the franchisor throughout the term of the franchise agreement. Typical ongoing fees include:
The franchise agreement will define whether or not the franchisee has obtained territorial rights where the franchisor will not establish nor authorize other franchised locations. Territorial rights are typically based on geographic service locations or zip codes where the franchisor represents and promises that it will not permit other franchisees to operate. Some franchise systems do not offer or provide territorial rights and are therefore not restricted as to the locations and/or territories within which the franchisor may sell additional franchises.
The franchise agreement will define the legal rights and obligations between both franchisor and franchisee as to the franchisee’s establishment of the franchised location or outlet, ongoing operational requirements, franchisor’s support and training obligations, and the franchisee’s obligation to adhere to the franchisor’s confidential operations manual and overall system requirements.
The franchise agreement will contain non-competition covenants and obligations imposed on the franchisee during the franchisee’s operation of the franchised business and after the franchisee either terminates or ceases to operate the franchised business. During the term of the franchise agreement, franchisees are typically restricted and prevented from operating a competing business anywhere in the United States. Following the termination or expiration of the franchise agreement, franchisees are typically prohibited from participating in a competing business for a designate number of years and relative to a designated territory.
The franchise agreement will define many other legal rights between franchisor and franchisee. These rights include when the franchise agreement may or may not be terminated, the rights franchisees have in curing any alleged breach, renewal rights, and rights respecting a franchisee’s transfer or sale of the franchised business.
As a prospective franchisee, or even as a current franchisee, it is important to also know that many states have enacted franchise relationship laws that may provide you with legal protections that exist outside the language contained in the franchise agreement. Franchise relationship laws are designed to create more balance in the relationship between franchisor and franchisee, and in many states, franchisees are afforded additional rights when dealing with their franchisor.
When evaluating your rights as a franchisee, it’s important to review your franchise agreement with an experienced lawyer and to discuss and evaluate whether or not your state has enacted franchise relationship laws to provide you with additional protections.
Are you a franchisor or a part of a franchise sales team? Do you want to learn more about franchise sale compliance and ensure that your sales practices comply with franchise laws and are consistent with best practices? Then this guide is for you. In this guide you’ll learn the... read more
In this guide you’ll learn the basics of franchising, how to franchise your business, and how to win at franchising. We’ll also take a deeper dive into legal requirements for franchising and why they matter, steps to take before and after you launch your franchise, and even some tips on... read more
When considering expanding a business both franchising and licensing are possible options. In this guide, you'll learn the differences of franchising and licensing and understand how each will affect you. read more
Are you considering franchising your business? If so, its important to understand the advantages and disadvantages of franchising your business. Franchising is a legal and business model designed to achieve multi-unit expansion. Compared to organic expansion where you invest in and open multiple locations yourself, franchising allows you to recruit... read more
The documents to franchise your business include the franchise disclosure document (FDD), franchise agreement, operations manual, financial statements, and state specific registration applications. Below we discuss each franchise document in detail. 1. Franchise Disclosure Document Before you can offer or sell a franchise you are required to issue and disclose... read more
Franchising may be the next big step for your business and represents an opportunity to grow your brand. So, how do you know if franchising is right for you? How do you know if your business is franchisable and, if it is, whether or not you should franchise your business?... read more
In this webinar, Charles Internicola and Laura Meyer, founder of Joybrand Creative, talk about how to position your brand to win at franchise sales. Some topics include: How franchisors can develop their brand strategy How to differentiate your brand strategy between your targeted end-user customers and prospective franchisees for franchise... read more
In this webinar, Charles N. Internicola, Esq. and Lisa Welko, CFE of Integrity Franchise Group discuss what it takes to make your brand attractive to franchise brokers and sell to qualified franchisees. Selling franchises and building a durable franchise system - all comes down to being a "good franchisor," making... read more
Key strategies to accelerate franchise growth for startup and emerging franchisors In this webinar, franchise attorney Charles Internicola and Nick Powills, founder of No Limit Agency and 1851 Franchise, discuss key strategies to accelerate franchise growth through PR and digital media. Some topics include: Steps franchisors should take when it... read more
With services to make your growth strategy simple, cost effective, and with a team excited to help you, let’s talk about how we can help grow your business.
Fill out the following form and we’ll contact you as soon as possible. To reach our team directly, give us a call at (800) 976-4904.
An attorney client relationship is not established by submitting this initial contact information.