This blog will help you understand, how a franchise agreement looks like & what are the important points in franchise contracts.
So, If you want to grow your brand, franchising can be your next option.
People trust the franchise business a lot, and you had to start by creating a tremendous legal contract for your business immediately.
The franchise agreement is created to protect the company’s legal rights. If the contracts are not written as they should be, they will never serve their purpose.
Let’s start knowing about FDD or Franchise Agreement.
What is Franchise Agreement or FDD?
Being a legal document, the Franchise Agreement also known as FDD or Franchise Disclosure Deed narrates the roles of both parties.
One essential document that needs to be signed and agreed upon between the franchise and franchisor, the FDD, states how any franchise can seek support from the franchisor.
The document also comments on the franchisor and its role in decision-making for the brands and supporting its subsidiaries.
The FDD will also state the franchisee and their fees for running the business and sharing a fixed percentage of profits generated.
FDD will further note the legal and professional terms and conditions for both parties to agree.
Also, the document will consist of brand name, fees, penalties, legal clauses, franchise cancellation and compensation.
What is included in FDD or Franchise Agreement?
The legal document here will clearly define the roles of the franchisee and franchisor.
It is essential to go through the complete FDD before executing and never overlook its importance, as every minute detail of the business is mentioned in the agreement.
It states brand strategies, settlement terms for everyone, the type of franchise opted for, the project, and the kind of support the franchisees provide to sustain the business.
Types of FDD or Franchise Disclosure Document
There are 3 types of FDD prepared. They have been detailed below.
Single Unit Franchise
One of the common forms of the franchise agreement is listing down the legal duties and operations of the establishment.
The franchisees are responsible for investing their capital, followed by using their managerial skills to succeed.
Multi Unit Franchise
The franchisor has all the rights to allow the franchisee to open more than one unit. But for this type, the franchisee should have enough money to sustain ahead and be an asset for the business.
For this type of franchise, the franchisor will provide all the rights for the country, continent or regional level to take care of all services and products and sell them under their window.
If you opt for his model, you can recruit more franchisees. The franchise buying out the master franchise will become the franchisor for the sub-franchises he recruits.
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Essential elements of Franchise Agreement
Every franchise agreement starts with the franchisor, its parent company (if any) and its subsidiaries.
Description of Brand
The first few pages talk about the detailed descriptions of the brand, how it all started, and the idea behind it and will state the complete history.
The agreement will consider the professional profiles of the executives, managing directors and franchisors working with the company.
The third section will consist of civil litigations and past criminals for the management and also with the parent company.
Parent Company Info
The fourth section states the information about the parent company if they have been through a bankruptcy situation.
Fees & Payments
The fifth section explains the initial payment required and how the fees are calculated, considering the varied factors.
The sixth section explains the recurring payments that every franchise has to pay in the future for enrolling with the franchisor.
The seventh section mentions all the money needed to set up the franchise. This section is showcased in a table format.
The eighth section describes the offerings. It will also state the restrictions the franchisor can have about the making of products too.
The ninth section is all about obligations. The reference table will be presented and describe the items that franchisees will be obliged to and agree to.
T&C of Franchising
The tenth section will be about financing and will dictate all terms and conditions for the financing arrangements offered by the franchisor.
Support & Training
The eleventh section will mention the training services, infrastructure help, advertising and other assistance the franchisor provides.
The section here describes well the services provided by the franchisor to the franchisees.
The twelfth section will describe the territory and whether there will be any scope for modification in future.
The thirteenth section will impart information about the trademarks that can be opted for and the names required.
Fourteen sections narrate everything about copyrighting, patents and also proprietary.
The section is critical, especially for franchises, as it mentions the copyright and patent information to be followed in the future.
Fifteen sections allow you to participate in the franchise’s actual operations. It also describes the varied obligations to be followed by the franchisees for their daily operations.
The sixteenth section mentions the restrictions that every franchisee needs to obey for selling their offerings to their clientele.
The Seventeenth section narrates the termination clauses, renewal timing, transfer of the franchises and dispute resolutions.
Also, it refers to when the franchises had to renew their license, or the restrictions would be executed if there was any disagreement with the franchisor.
The Eighteenth section will be stating about the public figures. The public figures can be celebrities or people with high reputations and will display the amount that needs to be paid if they are called to the store. The figure is revealed in the section.
The nineteenth section states the financial performance. It will always depend upon the franchisor upon the franchisor to reveal the details of the financials for the year or not.
All info of Outlet
The twentieth section will state all the information about the stores and the new franchisee. The team will reveal the contact information about the existing franchises at various locations.
The twenty-first section narrates the financial statements for the last three years. Show all details of the audited statement of the parent business.
The twenty-second section states the contracts. Here the section describes the agreements any franchise had to obey and sign, followed by legal execution.
The last section will mention the receipts. The budding franchises had to sign these receipts to say they had received the FDD.
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Franchise Agreement or FDD – Conclusion
The above articles state everything about the franchise agreement and how you are able to comprehend them before signing them off.