The Essential Parts of an Agreement

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No matter what kind of Franchise agreement you have, there are some essential parts that every Franchise Agreement must have. These parts outline what is expected from all parties involved in the Franchise Agreement, and what exactly is involved with the franchise. It’s important that you read your Franchise Agreement thoroughly and that you understand what it entails, and what is expected of you in order that there are no surprises

  1. Definitions
    The first essential part of the Franchise Agreement is the definitions. This is where everything is outlined. Who the franchisor is, who the franchisee is, and what intellectual property is involved, such as trademarks, copyright, trade dress, know how, trade secrets, and anything else that might be considered intellectual property. It will also state what is being used in that territory and how long it will be used there – this includes date of commencement, the territory, the renewal, and the date of termination. This is the defining aspect of the Franchise Agreement.
  2. Grant
    This covers everything that deals with territory, such as who is allowed to put a franchise there, and what rights each franchisee has, as well as the franchisor. Depending on the type of agreement that has been reached, a franchisee may have exclusive rights to a territory, which means no one else can open a franchise there; sole rights, which means that only a franchisor can open another store there; or the ordinary license, which means that although the franchisee can use the intellectual property, they have no rights in regards to who else can build in their territory.
    It’s important to know exactly what kind of agreement you have so you realize what your rights are in regards to other franchisees and your territory.
  3. Payment
    This outlines what the franchisee must pay and when it is to be paid. It outlines what the fees will be, what they are, and how often the franchisee must pay those fees. It also tells what the fees cover. One thing that will be mentioned in this area is about royalties. Royalties are a portion of the sales each month that the franchisor gets.
  4. Obligations of the Franchisor
    This part of the Franchise Agreement states the Franchisor obligations. It lets both parties know what they will do for the franchisee, what training they will provide, what provisions the franchisor will make to help the franchisee set up their franchise. It outlines what the franchisee can expect from the franchisor and what the franchisor will help them with. For example, setting up the business, handling your training as a franchisee, and showing you how everything works.
  5. Obligations of the Franchisee
    This is what your obligations are as someone who is buying the franchise. It outlines everything that is expected of you as a franchisee and when it is expected. It covers paying what is due to the franchisor, training of the new employees, and other things that you, as a franchisee, will need to do, and what is expected of you.
  6. Cession/Alienation/Assignment of Rights
    This means that you, as a franchisee, assign, alienate, or cede your rights and you can’t sub franchise either, without the expressly written consent from your franchisor. This way the franchisor doesn’t have to worry about people who are not good for the business, and who haven’t been properly trained, being a part of the franchise.
  7. Termination
    This is a way that either party can end the contract. It should take into consideration the interests that are the best for all parties. This states that the contract can be ended because of reasons such as monies due, if the franchisee is acting in a way that is prohibited by the manual that contains the procedures and operations, or has a poor performance record or has standards that are below what they are expecting. Another reason why a contract may be terminated is if the ownership of the intellectual property comes into question.
    This is extremely important.
  8. After Termination
    This will tell the franchisor what they will receive after the contract is terminated, in regards to documents, materials, products that have the logo or anything else on it that shows the intellectual property, and programs.
    The other essential things that are in the Franchise Agreement are restraint of trade, disclosure, confidentiality, suretyship, provisional period, and competition commission concerns.

For the most part, the Franchise Agreement outlines who everyone is, what they are supposed to do, and what is expected of them. This is the way that people are certain that there aren’t any questions and there aren’t any doubts as to what is supposed to happen.

The Franchise Agreement is something that is essential for the franchisee to look over, and to make certain that you understand what is supposed to happen. You don’t want to go into the Franchise Agreement blindly and sign something that you don’t understand

If you have a lawyer, it’s not a bad idea to sit down with them and have them explain to you what is in the Franchise Agreement because it may not be in terms that you understand. It’s better to ask someone neutral about something you don’t understand then to go into the Franchise Agreement with no knowledge of what you are reading or what you are signing.

Know what your obligations are – Be certain that you know exactly what your obligations are as a franchisee. You want to read over that part especially so that you don’t have a shortfall because you didn’t know was expected of you. Make certain that the expectations aren’t ridiculous either.

Know what the obligations of your franchisor are – Be certain that you know what your franchisor is responsible for and make certain that if they don’t hold up their end of the deal that you call them on it. They would expect you to meet your obligations, so you should be able to expect them to meet theirs.

Understand the termination clause – This is something that is a big one, because it clearly outlines the reasons why the contract can be terminated. Like your obligations as a franchisee, this is something that you should know and understand fully.

When you go over the Franchise Agreement with the franchisor, you want to make certain that you ask questions if there is something that you don’t understand or don’t agree with. Many times with Franchise Agreements, the terms are negotiable and you can ask for something to be changed. Don’t be afraid to ask questions – it shows that you are thinking and it will show your franchisor that you are concerned about understanding the business. As the old saying goes – the only dumb questions are the questions that aren’t asked.

One thing to remember is that you need to know what is in your Franchise Agreement, and understand what it means to you and to your business. A good business person is one that is well informed and knows what everything in their agreement means. Do your research and familiarize yourself with the terms before you sign anything. This will help you to make informed decisions and help you to also ask intelligent questions.

Nothing impresses a boss more than someone who has obviously done their homework and knows what they are doing. So it won’t hurt you as a franchisee one bit to familiarize yourself with the terms and what they mean, so that you don’t have to ask a lot of questions that, although they will answer them, might make you look as though you aren’t interested enough in the business venture to find out the answers for yourself.

Do your research, familiarize yourself with everything that you can, and utilize the power of the Internet. You can find plenty of people who are also new franchisees and also franchisors that you can talk with and get ideas from. There are message boards and groups, and it never hurts to know that there are other people who are going through what you are going through. When you know that you aren’t alone, things are much less confusing and you feel more ready to face whatever will come your way.

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