In order to
understand as to how we can execute a proper franchise agreement, first we have
to be clear what a Franchise is and why is Franchise Agreement executed. In one
line we can say that a
What is a Franchise?
When an
established brand decides to lend their name, goodwill and trade secrets to set
up their Brand’s Store on different locations and executes an agreement for the
same effect then such an agreement is termed as a Franchise Agreement. Here,
Franchisor and Franchisee enter into a legal agreement where Franchisee
operates its business under the name of the Franchisor in exchange of payment
of some fees including initial payment and royalties.
Checklist for Franchisee
Agreement
Following is
an example of checklist to be considered before finalizing a Franchise agreement. This
is done to make sure that the agreement is not ambiguous and includes all the
key clauses.
Costing Related
·
If the
parties have decided on total cost, royalties etc. If yes then clear
distinction is provided between total cost, initial fees, initial cost
required, royalty amount are to be provided.
·
If any
part of the initial fee refundable or not.
·
Payment
terms are to be clearly defined including total amount, time of payment and
other financial arrangements like lump sum payments or installment facilities
etc
·
If the
royalty amount is fixed, revenue based or a combination of the two is finalized
·
Provisions
relating to advertising and promotion costs. And cost sharing details.
Location
Related
·
Who has
the authority to select the location
·
Can the
franchisee operate in more than one location?
·
After the
termination of the contract can franchisee operate independently in the same
area.
·
Which
party will be responsible to obtain zonal permissions etc.
Building, equipment and
supplies Related
·
Who will
decide on building plans and related details
·
Provisions
relating to remodeling and redecorating and who will do it.
·
Is
franchisee required to purchase supplies and equipment from franchisor only
·
Are building, equipment and supplies covered
by any kind of Group insurance plan.if yes, then its details are to be
mentioned.
Operations related
·
Are
accounting and bookkeeping is handled solely by franchise or there is an
arrangement for the same too.
·
Degree of
control Franchisor has over the franchisee’s operations to make sure the brand
quality is maintained.
·
Management
aid along with training and assistance provided by the Franchisor. And if the
cost for the same if covered by the royalty fees or not.
·
Are there
any quota’s set for sale, operating hours in the contract.
·
who will
provide the promotional materials.
·
Are there
any provisions relating to hiring fir the franchisee.
Termination and Renewal Related
·
What are
the non-compliances under which agreement can be terminated by the Franchisor
and vice versa.
·
What are
the restrictions imposed on franchisee in case of termination done by
Franchisor.
·
Is
sufficient time provided in case of termination for amortization of capital
payments?
Other Matters
·
Is
Franchisee assignable to legal heirs in case of death or disability or can it
be sold or not.
·
Is
business name, trademark, logo or any other mark distinctly identified with the
franchisor. And there are not subject to any dispute or litigation.
·
If all
the requirements are met by the franchisor before executing this agreement.
Other points to consider
·
Can the
franchisee sell the franchised business and assign the franchise agreement to
the buyer?
·
Is the
franchise assignable to heirs, or may it be sold by the franchisee's estate on
death or disability?
·
What is
the duration of any patent or copyright material to the franchise? If time is
limited, does the franchisor intend to renew, and is this spelled out in the franchise agreement?
·
Has the
franchisor met all law requirements (registration, escrow or bonding
requirements, etc.), if applicable?
Source url -
http://enterslice.over-blog.com/2018/09/checklist-for-drafting-a-proper-franchise-agreement.html
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