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The Franchise Agreement
If the sales prospectus is the most important document you’ll create on your own, the franchise agreement is the most important document you’ll create -- period. It sets out, in detail, the terms of your relationship with your franchisee. The franchise agreement is what protects both of you in your relationship. It sets out the terms, details, and obligations of each party and is a legally binding contract.
I Don’t Need A Lawyer!
No matter how experienced you are in business matters and drafting contracts, you must have a lawyer’s assistance in preparing your franchise agreement. This document is absolutely essential. You have to get it right, because you won’t have another chance. Once the franchise agreement is signed, it’s a legally binding document, and if you’ve left a loophole, or failed to include a piece of legal information, that’s basically too bad for you.
Nor is it enough to simply get your second cousin twice removed on Great Aunt Selma’s side, who happens to specialise in criminal law, to glance over your draft. You need an attorney who specialises in franchise law. Expect this to cost about £5000. It’s worth it. A lawyer will explain legal details, protect you from liabilities, and see to it that your franchise remains under your control.
While you’re at it, have your lawyer look over your nondisclosure agreement, too. That way, s/he can spot any problems for you. If you’re unsure about the nondisclosure document, you might want to simply have your lawyer prepare it on your behalf at the same time you create the franchise agreement.
What’s In It?
The franchise agreement covers:
· Your responsibilities to the franchisee
· The franchisee’s obligations in operating the business
· Specific details on how much training and support you will provide and what, if any,
cost you provide it at
· The franchisee’s territory and any exclusive rights
· The length of your franchise agreement
· What happens if your franchisee wants to renew the agreement
· The initial cost the franchisee pays
· Royalty fees
· Technical details such as logos and trademarks
· Details of selling or transferring the franchise
· Advertising policies
· Dispute settlement policies
· Franchisee termination
· Operating practices
· Lawyer fees
As you can see, you’re not going to be dealing with a short document! The franchise agreement is your contract with your franchisee; as such, it has to cover every single detail. There’s no standard form, which makes it even more important to have an attorney prepare this document. Every franchise agreement is different.
Termination Clauses
We won’t go over the franchise document in great detail, because most of it will be prepared by (or at least with the assistance of) your attorney. However, it’s worth mentioning termination clauses, because you’ll have to decide yourself what those will be. Under what circumstances can you terminate an agreement with your franchisee? What constitutes a violation of the franchise agreement? How long do you want to be in this relationship? These are important things to consider before your trip to the lawyer!
Franchise Documents and the Franchisee
Legally, you must provide the potential franchisee a copy of this document well before signing. It’s only fair that they have time to review it and discuss it with their own lawyer. You will probably have terms that your franchisee wishes to negotiate: things like price, timing of payments, and duration of the franchise. Often the franchisee will anticipate problems specific to his or her location -- things that might not occur to you and you will have no problem changing.
However, what you change is up to you. Some things you may not wish to alter: things like how your logo is used and how your product is marketed (in other words, the things you decided back in step one). You will need your attorney in this stage of the operation, too.
When considering the franchise agreement, make sure it’s in agreement with other documents you’ve prepared (i.e., the sales prospectus and nondisclosure agreement).
Summary
The franchise document should only be drafted once you’re certain you’re ready to proceed with your franchise. It’s not a cheap document to prepare, and you shouldn’t expect it to be. It is, however, the single most important document you’ll prepare, and because of that, it’s worth the added expense.
How
To Franchise Your Business Info Guide
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