A franchisor is basically the person who creates the document of the franchise. However, franchisees are also allowed to verify it before signing. The franchisee must carefully read and understand the entire contract and seek advice and peace of mind from a trusted legal counsel during the verification process.
Are you interested in owning a franchise business? If yes, then you need to have a fair idea about what you can expect in a franchise agreement before starting the venture. Only when you will know what you can expect Fundamentals of Franchising, will you be able to run the franchise without any hiccups, whatsoever.
In order to draft a solid franchise document, the help of a lawyer is imperative. A strong franchise agreement drafted by a franchise lawyer protects both franchisees and franchisors and lays a strong foundation for the franchise’s success.
When it comes to franchises, one of the most important legal documents is a franchise document. This document legally establishes the relationship between franchisors and franchisees. Without it, many business-related threats, glitches, and breaches can be committed intentionally or unintentionally by everyone involved.
The franchise document defines and details the franchise relationship. In particular, it defines franchisees’ obligations and responsibilities to franchisors and vice versa.
Fundamentals of Franchising
Here are the 10 introductory provisions that are somehow included in all fundamentals of franchising
1. Site/Region: The franchise document mentions the area in which your business will function, and it will also define the company’s exclusive rights.
2. Operations: This content section explains how the concerned franchisee will run and operate their business
3. Training support: Their franchisors also offer training, and various training plans are provided to the franchisee by their franchisors. The training can be held either at the corporate offices or on the field. The document will also highlight all the managerial and methodological support information.
4. Duration: The exact course of the franchise document will also be listed in the document.
5. Franchise remuneration/investment: Preliminary franchise fees are usually charged in advance. This gives the franchisee the right to make use of the franchisor’s brand and operating system. These costs are clearly outlined in the document.
6. Royalties/ongoing fees: The franchisor’s royalty structure details are as follows: Most franchisors charge franchisees ongoing royalties. This is usually a fraction of the entire sales and is often paid monthly.
7. Trademark/patent/signage: This section describes how franchisees can use franchisor trademarks, patents, logos, and signs.
8. Advertising/marketing: The franchisor discloses its advertising contract and the franchisee’s fees for these costs.
9. Renewal strategies/termination/cancellation policies: A fundamentals of franchising document describes how to renew or terminate a franchise. Some franchisors include an arbitration clause. This requires the arbitrator to consider the case before going to court in the event of a proceeding.
10. Exit strategies or Exit clauses: Each franchise has its reselling policy. Some permit franchisees to sell franchises of their choice. Other contracts include a repurchase or initial refusal clause. These allow franchisors to buy back franchises at set rates or match potential buyer offers.
Franchise Document Preparation?
Creating a franchise document has two phases: preparatory work, the ideation, and planning phase, and the actual writing process. Initial work consists of determining fees and creating contract details such as terms, renewals, and transfer of ownership. These dates are fair and should be in a favorable situation for both parties. If the data and numbers of the fundamentals of franchising document are not well thought out, it will not help the franchisor.
Even if other companies have 3% royalties, they should not charge less than 2% royalties just for them to differentiate their brand and make it more marketable. Franchisors should consider that these percentages and fees need to effectively cover costs and services such as store opening support, store visits, and employee salaries.
The writing process is usually completed within a month until the lawyer reviews all the details and finally signs the contract. Franchisors can create their legal documents with lawyers, but it is advisable to consult with a franchise expert or consultant who specializes in this matter.
What is Included in the Franchise Document?
Typical contents of a legal franchise document are fees and payment structure, duration and renewal, training, and transfer of ownership.
Different types of businesses can add content depending on the nature and needs of their business. The franchisee strongly recommends that you read, understand, and confirm all parts and details of the contract before signing it. All possible scenarios must be included and covered for franchisors in the contract. Overall, the details of the document should be meaningful to both parties.
Like marriage, the franchise relationship between a franchisor and a franchisee works well when both are happy. And an effective way to ensure this is to design, conclude and execute a fair and strong franchise legal contract.
In this article, we have covered the process of preparing franchise documents and content buckets included in the agreements. Fundamentals of Franchising documents detail the relationship between franchisees and franchisors. It describes the declaration of ownership and outlines site upkeep and upgrade requirements. Read and review this document and have a lawyer with franchise experience review it.
Notify before signing a Final document. Like marriage, you want to sustain this relationship, and for that, it is essential the franchisor and franchisee are happy and content with the contract.