The most common elements in a franchise agreement are as follows:
Personal Details: The franchise agreement must contain the full details and legal authority of the parties. In case the parties to the agreement are companies then the director or the duly authorised officer of the organisation is to sign the agreement.
Consideration: The agreement must state the number of fees which is to be paid by the party, the royalty, deposit, other charges, mode of payment, payment date, etc.
Details of business operations: The details of goods and services which are to be provided by the franchise, right of franchisor to inspect at any time etc., such important details are to be mentioned in the agreement.
Use of intellectual property: Maximum franchise agreements have clauses that require the franchisee to notify the franchisor in case of trademark infringement.
Governing law: It is another very important aspect i.e. to mention the governing law clause it helps in making sure as to which law would govern the parties under this agreement. In the case of foreign entities and Indian entities entering the agreement, it assists in understanding which country’s law would have governance.
An established business for purposes of expansion agrees to provide its brand, goodwill and other required support to assist another party to set up and run the business in exchange for some charges and part of the revenue which is generated. In such circumstances, a legal document is required which declares all the terms and conditions acceptable to all the parties and the rights, duties and obligation of each party along with the number of profits to be shared. Such an agreement is called the Franchise Agreement.
Parties to a franchise agreement
The parties to a franchise agreement are the Franchisor and the Franchisee. Franchisor being the party who is providing his brand and Franchisee is the party who is availing the brand from the franchisor.
Different types of franchise agreements
The types of franchise agreements are as follows:
Development agreement: This type of agreement provides the franchisee with an exclusive right to open a store in a particular area in a fixed time frame. The development agreement only provides for the development of the franchise. After the development, a separate agreement needs to be executed to operate the store.
Basic Franchise agreement: After the development, in order to operate the business this agreement is made by parties. It is necessary to have exclusivity clauses in the franchise agreement so no other stores of the same brand are operated within a preferred distance from the store.
Sub-Franchise agreement: This agreement is made in circumstances where the franchisee is unable to operate the business on a full-time basis or wants to outsource the operations of the franchisee.
Relevant clauses in a franchise agreementFranchise agreement clauses differ from business to business. There are similar aspects which these agreements address. They are:
Term and renewal
Fees and royalty clause
Duty of Franchisor
Duty of Franchisee
Default and Termination
Products & Operations Standard and requirements
Who is the official registration authority for a franchise agreement?
Indian laws do not require the franchisor to be registered with any regulatory or professional body.
Which laws govern the offer and sale of franchises?
Since there isn’t a specific regulation to govern the franchises other enactments such as the Indian contract act, competition act, consumer protection act etc., are used to govern the franchises.
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