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 fourteen 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.
- Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard
- Franchisors Services, such as
- Administration, Collections and Billing, Consultation, Marketing, Manual, Training and Vendor Negotiation
- 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