A Franchise Agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.
Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule. The Franchise Rule requires a franchisee be supplied a Franchise Disclosure Document (FDD ) (originally called Uniform Franchise Offering Circular (UFOC )) prior to signing a franchise agreement, a minimum of ten days before signing a franchise agreement.
Once the Federal ten-day waiting period has passed, the Franchise Agreement becomes a State level jurisdiction document. Each state has unique laws regarding franchise agreements.
A franchise agreement contents can vary significantly in content depending upon the franchise system, the state jurisdiction of the franchisor, franchisee, and arbitrator.
It overall provides the investor with a product, a branded name and recognition, and a support system.
A typical franchise agreement contains
Franchise Disclosure Document (FDD)
Disclosures required by state laws
Parties defined in the agreement
Recitals, such as Ownership of System, and Objectives of Parties
Definitions, such as
Agreement, Territory Area, Area Licensee, Authorized deductions, Gross Receipts, License Network, The System Manual, Trademarks, Start Date, Trade name, Termination, Transfer of license.
Licensed Rights, such as
Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard
Franchisors Services, such as
Administration, Collections and Billing, Consultation, Marketing, Manual, Training
Franchisee Payments, such as
Initial Franchise Fee, Training Fees, Marketing Fund, Royalties, Renewal fee, and Transfer fee
Franchisee Obligations, such as
Use of Trademarks, Financial Information, Insurance, Financial and Legal responsibility
Relationship of Parties, such as
Confidentiality, Indemnification, Non-Compete clauses
Transfer of License, such as
Consent of franchisor, Termination of license, Termination by licensee
Other provisions
Governing law
Amendments
Waivers
Arbitration
Severability
