Franchise agreement

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