Like any other agreement, franchise agreements must be thoroughly checked before signing on the points line. Remember when you are considering entering into a franchise agreement: in the United States, a company becomes a franchised company if it meets the definition defined by the Federal Trade Commission (FTC), known as the FTC franchise Rule. According to the FTC franchise rule, there are three general requirements for a franchise agreement that is considered official: If you expand your business through franchising, a franchise agreement is the key to protecting your brand. In essence, it explains how your brand can and cannot be used, and what critical elements you have in your business format. What is important is that Goldman has indicated that many franchisees are personally responsible for paying royalties, which are referred to as personal guarantees, which can make breaking a deal an expensive and risky undertaking. Franchise agreements transfer the operating rights of a franchisor`s intellectual property and resources to a franchisee for a predetermined period. The rights and allowances awarded to a franchisee are very specific and leave little room for extension or error. Read and verify this document and have it verified by legal advisors with franchise experience. You want to be informed before signing a franchise agreement. Like a marriage, you want this relationship to be long. Key approach: When an agreement has a pricing structure, authorizes the use of trademarks and provides a marketing system and/or modus operandi, it is automatically considered a franchise agreement. Other specific provisions may be introduced depending on the reflection negotiations. The agreement must be adapted to each franchise concept.
There is no “One Size fits all” format. A custom franchise agreement, professionally developed, will protect your business, ensure the safety of franchisors and franchisees and ensure the safety of everyone. As a franchisor, you lend your brand to your franchisee. This is a great risk if you do not protect yourself properly and your brand. That`s why it`s important to set rules on the shape and sound of your brand, when you should use protected intellectual property, what advertising can be done and what the franchisee needs to know about using your brand. Many franchisors offer their franchisees different levels of education. While you don`t want to micro-manage your franchisees, many will be business owners for the first time and will not be sure how they can start and run a business. The franchise agreement may contain instructions on which registration software the franchisee must use and what records they must keep. The franchisor may also give itself access rights to these records in the franchise agreement. A franchise agreement is the rule document for how a franchisee will operate its franchise. This franchise agreement is important to the success of both the franchisor and the franchise, and the creation of the agreement should be carried out with care. It should be very important for the franchisor to ensure that the franchise agreement is drafted in a clear and legal manner in order to enforce all the requirements necessary to operate the franchise.
The FTC`s compliance franchise rule requires the FDD to be subject to the franchisor at least 14 days prior to signing the contract. This will ensure that the potential franchisee has sufficient time to verify the document and request a lawyer`s verification before signing. The FDD must contain information on the risks and benefits of purchasing the franchise. Key to the handle: Most (but not all) franchise agreements last 10 years.