Importance of Franchise Agreement in Present Market
A franchise agreement is just like any contract that you have ever entered into. It defines the rights and obligations of the parties involved. A franchise agreement in particular defines the relationship between the franchisor (the one awarding the franchise) and the franchisee (the one buying the franchise).There are legal, practical and operational issues that need to be negotiated in a franchise deal. The franchise agreement sums up the terms of the negotiations between the franchisor and the franchisee. The signatures at the bottom of the agreement signify that the agreement has been accepted and understood by all involved parties. A franchise agreement is the chief document demarcating any franchisor/franchisee affiliation and is lawfully obligatory for both parties. This document clearly states the compulsions, prospects and legal privileges of both parties and is the groundwork of every association within the franchise organization. These franchise agreements are formulated to ensure that the expectations and roles of each party are evidently described.
At present day franchising, there are regular conditions where a franchisee which is a corporation will desire to sell their privileges under the contract to a new party. A franchisor has to pay interest to assure that there is no unlawful or unintended transfer of confidential proprietary information such as marketing methods, operations manuals or secret recipes. Franchising through franchise consultants is the easiest method of entering into this line of business. Although it is not without its intermittent drawbacks, many business owners see franchising as an exhilarating and natural next step towards rising their business. Taking assistance from franchise consultants will definitely help.
Most established companies who are open for franchise have a standard franchise agreement that leaves little room for negotiation and special terms. This is actually good for a franchisee. This ensures fairness because negotiation skills do not have much impact on the final contract. Thus, if you buy a franchise of an established business, you are sure that you are getting exactly what the other franchisees like you got in their own franchise agreements. The franchise agreement will enclose detailed information concerning the responsibilities of both parties on how the business should be functioned. It also has information on how employees should be guided, how much the franchisor will be remunerated in royalties and fees, how long the agreement lasts, what region a franchisee can function in, what kind of initial training, continuing support and advertising they can look forward to as they open up and persist to run their operation. It will also delineate up-front payments, what will come about if the franchisee desires to transfer possession or sell the franchise, how disagreements will be resolved, and how and when the franchise agreement can be concluded.
A franchise agreement is very important. Herein is stated in black and white what your monetary obligations to the franchisor are and what you can expect from the franchisor in return. It should state in no uncertain terms the scope of territory to which your franchise gives you exclusive rights to.
A franchise agreement enumerates all the business operating practices that are allowed, encouraged and absolutely prohibited. The franchise agreement makes sure that you conform to the methods that were already proven to be effective so that you can be assured of your own success.
A franchise agreement protects your interests. If your franchise agreement says that inventory can be purchased through the franchisor at a 20% discount, then you can be sure that you will get this discount. If the franchise agreement prohibits franchisees to purchase ingredients from any other source except the franchisor, then you can be sure that the quality of your products will be at par with what the customers of the company expect from that particular company.
The franchise agreement is not there to confuse you but to guarantee that you will be getting your money’s worth. Treat it with respect by reading it thoroughly and asking questions if necessary. Only after you are satisfied with its stipulations should you sign it. And then, be sure to stick with it.
Rules and obligations should be adhered to in order to become a franchisee.
The objectives of a franchise agreement are to achieve the following:
To contractually bind the franchisor and franchisee by both parties agreeing to the relevant terms and conditions set out in the contract.
To provide protection to the franchisor and franchisee that can be relied on under relevant circumstances.
There is no legislation that governs the rules for franchising; therefore the franchisor has the power to set out terms of the agreement that must be strictly adhered to by the franchisor and franchisee. If any disputes were to arise, both parties would to turn to look at the agreement and determine which party has done wrong and how to correct it. It is therefore important that before committing to any terms and conditions the franchisee must either take time to thoroughly read through the agreement or seek advice from a legal professional or ensure that the agreement sets out clearly:
* Specific details of both parties.
* The duties of both parties.
* The grounds on which one party can terminate the agreement.
* The obligations of each party and when they should be met and in any case if they are not met how they should be enforced.
* The consequences of breaching any term or condition in the agreement.
It is essential for franchisors to make available a copy of this agreement to all prospective franchisees no less than five business days previous to they sign a franchise contract, so that it can be evaluated by an legal representative to make sure that there are no predicaments with the content or wording. It will include many of the similar issues covered in the Franchise Disclosure Document, but in added descriptions, exclusively tailored to each company.
Each franchise agreement will be diverse, as every franchise business functions in its own way with its exclusive techniques, training and operations. Because of this, it is imperative to have a guided franchise attorney go over the agreement to make sure that there is no irregularity or uncertain content that may evaluate too profoundly in support of one side over the other.
A franchise agreement can cause problems between the franchisee and franchisor if it is drafted badly therefore it is important to use the services of a legal professional for advice.
Author info :
Sparkleminds consists of franchise consultants with unmatched expertise in preparing franchise agreements. The franchise agreement outlines the way your business will work within your franchise system. It gives you, the franchisee, and your franchisor a clear understanding of the terms of your business relationship.
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