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.^[1] 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.^[2]

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

See also

• American Association of Franchisees and Dealers
• Franchise consulting
• Franchise Disclosure Document
• Franchise fraud
• Franchise termination
• Franchising
• List of franchises
• The Franchise Rule
• U.S. Securities and Exchange Commission

References

1. "Consumer Information" (PDF). ftc.gov. Retrieved 25 January 2015.
2. "Buying a Franchise: A Consumer Guide". ftc.gov. Retrieved 25 January 2015.

External links

• International Franchise Association
• American Association of Franchisees and Dealers
• Franchise Brokers Association
• FTC Franchise FAQ Page