Must haves of a Franchise agreement
After one has finally zeroed in on the right franchisor the next most important step is the Franchise agreement. This agreement should state down all the rules and regulation that shall govern the relationship. Also this agreement shall be referred to in case of a dispute between the two parties. This is a legal document which clearly states the rights and obligations of both the parties concerned and it is also binding on both. The agreement is the foundation stone of the relationship and also acts as an insurance cover.
Here are some of things that a Franchise agreement should definitely have
- Rights and Duties The franchise agreement should clearly state the rights and duties of the franchisor as well as the franchisee. The agreement shall not be signed by any party until and unless the terms and conditions are acceptable to them. Violation of these rights and duties might invite legal action.
- Terms of purchase The agreement shall specify on what terms the franchisee is supposed to purchase goods and services from the franchisor. Ambiguity with regards to these terms can cause serious conflict and hence these should be clearly mentioned in the agreement.
- Services and Support The agreement should also have a clause which specifies the services and the support that the franchisor will offer to franchisee. This will include all services from hiring and training staff to supply of products and services, from advertising to marketing et all.
- Duration and Renewal The agreement should clearly state the duration of the franchise. It should also specify the terms and conditions for renewal.
- Exclusive Rights The franchisee should check whether the agreement provides him exclusive rights over a territory viz no other franchisee or the franchisor himself can open a store in his area of operation. It should also mention the compensation in case the right is violated.
- Franchise fee, royalty etc The agreement should also specify the franchisee fee, royalty, profit distribution mechanism etc.