A franchise agreement refers to a legal contract between the franchisor and franchisee, which is binding and provides rights and obligations to both parties. The importance of a franchise agreement cannot be understated, as it serves to protect the financial investment of the franchisee and the integrity of the franchisor’s brand.
In the United States, a franchise business is governed by the Federal Trade Commission’s FTC Franchise Rule, and strictly adheres to disclosure requirements, with a Franchise Disclosure Document (FDD) being delivered to the prospective franchisee at least 14 days prior to entering into a binding contract. The FDD contains detailed provisions regarding the franchisor’s background, financial performance representations, and the legal and financial obligations of the franchisee.
The franchise agreement outlines the duration of the contract, typically being a long-term commitment of 10 to 20 years, and includes provisions for renewal. It also addresses the protection of territories, costs and expenses, site selection, support and training provided by the franchisor, marketing and advertising obligations, as well as termination conditions.
A key and essential point of a franchise agreement is the protection of the franchisor’s intellectual property, including trademarks, service marks, and branding, as well as other proprietary systems and technology. The agreement also specifies the rights and responsibilities of both parties in using the intellectual property.
Overall, a franchise agreement is a pivotal document in the franchising relationship, providing a framework for both the franchisor and franchisee to operate within, and ensuring mutual protection and transparency.