All You Need to Know About Franchise Agreement

Last Updated at: Dec 23, 2020
All You Need to Know About Franchise Agreement
Pizza Hut franchisees in India have started providing a contactless dining experience to their consumers during this pandemic period.  They have introduced a contactless dine-in facility that would provide a fully digital experience right from viewing the menu via QR codes to making payments. 


Bharti Airtel has said that it has achieved a YoY (Year-on-Year) growth of 3% as of March 2020. The company has thanked its franchise players for expanding its presence and contributing to its growth. 


Many business professionals are focusing towards running and owning a franchise than starting their own business. They trust that it gives increased returns with lower risk factor. Along with great avenue for success, it also have set of complexities. It is very essential for investors to check upon the franchising agreement before committing, to avoid arguments with stakeholders and financial losses.

Everybody likes being their own boss, but not many have the entrepreneurial skill required to manage a business. Hence, several business professionals are now shifting their focus towards owning and running a franchise rather than starting with their own business as they believe it brings with it lowers risks and increased returns.

Below you’ll find the list of services that will walk you through the need for the service, the eligibility, documentation procedure and benefits. Our experienced team members are there to guide you and complete the process at ease.

While this provides a great avenue to achieve success, it comes with its own share of complexities. It is vital that new investors go through the franchising agreement in detail before committing to any deal to prevent financial loss and arguments with stakeholders in the future. This agreement serves as a legally-binding contract that defines the relationship between the franchise and the parent company. Here’s a look at everything you need to keep in mind before signing such a contract.

Guidelines of a Franchise Agreement


  1. Agreements with prominent franchise companies often tend to be non-negotiable as most of such companies have already developed a proven strategy to maximize profits.
  2. They don’t need you to be creative concerning the contract because their lawyers have already gone over millions of case files and devised an iron-clad agreement that covers every circumstance that might arise in the future.
  3. Most of these companies need somebody to follow out their instructions and run things according to their style and wish.
  4. They have learnt through years of experimentation and running the business that establishing a line of command is the most crucial thing in business and hence do not want uniqueness but instead prefers uniformity.
  5. In most cases, the franchise agreement will stay “what it is,” and that you will not have much room for rearrangement or what you may think is an improvement.
  6. If you are somebody that wants a lot of creative space in the contract, stay clear of such companies and if you are someone okay with a well-established line of control then go ahead.
  7. Also, make sure you clarify all ambiguous points before moving forward to establish a level of comfort with the parent company.

Danger Signs

  1. If a company seems over-eager to negotiate large parts of their agreement, you need to be wary.
  2. This might mean that the company is not very confident of their methods or that their previous ventures did not go very well for them leading to them rethinking their business strategy.
  3. Both of these are not good scenarios for a prospective investor. Recruit experts to negotiate efficiently.


  1. Most agreements are unilateral and might seem unfair to you when you first read through it as everything seems to be from the company’s perspective.
  2. While this dynamic might not seem very beneficial, it is not as bad as you might initially think.
  3. The primary goal of such an agreement is the protection of the company including the brand and the integrity of the company.
  4. If you’re still uncomfortable look for a different company with a different approach.


  1. The agreement is full of rules and regulations that the franchise must follow to uphold the contract.
  2. It will list out things you must regularly perform aside from the general running of the business.
  3. These rules help you prioritize while operating your business and also prevents any sort of miscommunication later on.
  4. To verify such rules, contact other franchisees and inquire about the regulations.
  5. Again, if you are uncomfortable with any of them find a different franchise to pursue.
  6. The agreement also outlines, in detail, several ‘don’t do’s’ which serve as forbidden things.
  7. Many of these are related to privacy and quality control and cannot be messed with.
  8. If the company provides you with its trade secrets, then you must be very careful regarding its usage and make sure you don’t publicize it as this might lead to hefty fines and legal repercussions.
  9. Several of the other restricting rules help in protecting the system and prevents franchisees from breaking from the norm. This helps the parent company keep its franchises in check.

Basic Guidelines

    • Location- Designates the territory within which you have the right to operate and outlines any exclusivity rights you may possess.
    • Operations- Provides details of how the business has to be run.
    • Support- Most parent companies help with the training of staff so as to bring about uniformity within their franchises. So they help franchisees train their staff and also outline the administrative support that will be provided by the company.
    • Duration- Documents the length of time for which the document remains valid.
    • Fee- Details the upfront fee that grants the franchise has to pay the company to obtain a trademark for its brand.
    • Royalties- Outlines the franchiser’s royalty structure. This is paid monthly and is a fixed percentage of the total sales of the franchise.

Prepare Your Franchise Agreement

The agreement explains in detail what the company expects from the franchise, and also provides you with information regarding the operation of the business. While there is no standard form of such an agreement as the terms and conditions vary according to the type of business and the working of the parent company, they have several common areas. These areas have been highlighted in this article to help you with negotiating your way through such agreements.

The main guidelines in the franchise agreement should be about location, operation, duration, support, fees and royalties. The agreement should include all the details about the company’s expectation from the franchise and should provide information about business operations. As there is no standard form of agreement, it varies depending on the type of the business and working conditions of franchise.