What is a Franchise Agreement?
A franchise agreement is a legal, binding contract between Franchisor and Franchisee. Thus a franchise agreement grants a franchisee the right to use the franchisor’s system, proprietary marks to operate a franchised business. Thus franchise agreement in which the franchisor lends the trade name or business system to other person/entity. The contract shall define the brand name that will be used, the length of franchise agreement, clauses dealing with penal provisions, ranging from fines, compensation, cancellation of the franchise. The Indian franchising industry has seen vigorous development over the previous decade. In spite of the financial subsidence, the yearly development rate of the franchising business in India has stayed positive and is as of now pegged at 30%-35%.
Advantages of Franchise Agreement
Business privilege: A franchise agreement allows one to access to the trademarked business logo, the products and all of the marketing expertise that a franchise has to offer. The advantage to a franchise agreement is that it legally allows the person/entity to use a known trademarked business name and logo as part of business plan.
Control of the brand: The franchiser after entering into the contract shall be able to specify the terms and conditions of the usage of brand, penalties and rules and regulations are clearly defined.
What is the importance of quality franchise agreement?
‘Quality’ of franchise agreement might be surveyed on various parameters including: clearness in the specified reason, comprehensive/loophole free character, unambiguous.
arrangements/terms/conditions with no extension for inconsistency, a way of presentation, and most critical enforce ability. A franchise agreement is an agreement between the Franchiser and the franchisee which characterizes their relationship, rights and commitments.
‘Quality’ accepts significantly more important in a franchise arrangement because of the inalienable business and operational complexities in such arrangements. A quality franchise agreement must effectuate the hidden cooperative connection between the Franchiser and the franchisee.
What Are The Key Points in Franchise Agreement?
- Reimbursement Provisions. Be careful of the loss or harms that are not caused specifically by the acts of you or your representatives. You may ask for dialect, which does not expect you to reimburse the franchisor in the case, if you follow the methodology and arrangements of the franchisor.
- Advertising. Arrangements that expect you to spend a dollar sum or some percent of sales on publicizing might be brought down amid your initial couple of years of operation.
- Restrictions on the products that you wish to sell.
- The Transfer and Assignment Section. Be certain your lawyer deliberately audits this segment and that you comprehend your duties and rights.
These are few portions of the more important cases which you must negotiate while making franchise arrangement. Ensure that before you sign on the “dotted line” you completely comprehend your commitments and are alright with the last franchise agreement.
What does franchise agreement include?
The franchise agreement is a contract between the franchisor & the franchisee. Before signing the franchise agreement it is mandatory to go through the FDD i.e. Franchise Disclosure Document. FDD gives clear data about what one could anticipate from the settlement, the franchisor and the franchisee’s name, the sort of franchise that is being purchased, details regarding past execution of the franchisor with the project, the region, promoting and publicizing strategies and the sort of help that would be reached out to the franchisee and other important data as well.
There are few aspects in the franchise agreement that you have to give more concentration up on. The underlying expenses, the franchisee’s commitments, litigation’s, franchisor’s commitments and income claims are few such aspects. You must learn about the financial performance of the business to get a clear picture by this document. A good franchise agreement will contain all these and numerous more which will make your relationship with the franchisor a transparent one.
What points you must check before signing the franchise agreement?
The franchise agreement is the absolute business connection between the two parties franchisee & the franchisor. All franchise agreement are not indistinguishable, but rather they contain some similar points few of them are listed below have a look on them:-
Domain Guidelines-Certain region are assigned in which the franchisee may work together.
Charges Payable to the Franchisor- This incorporates the aggregate investment, franchise fee charges, and when the eminences are to be paid.
Services provided by the Franchisor- The training 7 support, promoting duties, and the products and services to be given by the franchise.
Renewal of Agreement– The particular time frame of the agreement is defined here, and also the details related to the renewal. Duration is somewhere about to 5 and 20 years.
Publicizing And Promotions– The franchisor must support the content, appearance, and recurrence of publicizing executed by the franchisee.
Transfer Rights- Franchisors commonly maintain whatever authority is needed to endorse the terms of any exchange and the transference. Likewise, franchisors determine that they have the privilege of first refusal or to purchase back a franchise.
Since franchise agreement is the coupling contract between the franchisor and the franchisee, we usually suggest that must employ an experienced professional to audit the franchise agreement. A lawyer who is inexperienced with the laws won’t meet all the requirements to guarantee your complete understanding of the points of interest that are discussed in the franchise agreement.
In some complex transactions, parties may reach an agreement which is not enforceable and is applicable as per the circumstances. Such a preliminary agreement can be considered as the Memorandum of Understanding, Letter of Intent. Memorandum of understanding might be useful when a specific real issue, such as getting an authorization from the government is required.
Who should write memorandum of understanding?
Memorandum of Understanding plays a vital role in specifying the different issues such as final price, when & how the delivery will occur, terms & conditions, specific products and services etc among the parties. Make sure that the task of the memorandum of understanding is to maintain the agreement and decisions on both the sides. Instead of using complex language it should be written in plain words keeping in mind that the main purpose is to maintain the same legitimacy that a verbal agreement would have.
How to use a Memorandum of Understanding?
Once the memorandum of understanding has been written don’t immediately show it to the other party members. Pause for a moment and let your team to have a look at it so that any error could be corrected and this will help you to appear more credible. In every negotiation there are some aspects that might not have been resolved, you can leave them out of the memorandum of understanding. When an agreement has been finalized after a principled statement of negotiation, it’s an ideal opportunity to record on document what has been consented for.
The memorandum of understanding is the final document that is made to confirm that both the parties have genuinely achieved an agreement with mutual consent. Preparing Memorandum of Understanding is not considerably harder than it looks, rather it needs attention. It must cover the essential parts of the conversation by understanding the negotiation and their agreement over the final value, the products, services, how to deliver the product and much more. Once the memorandum of understanding is created it will keep the other side members to attempt for making any changes in the terms and conditions of the memorandum of understanding.
Why Memorandum of Understanding is required?
You might have heard about many negotiations that after some time of agreement got unraveled. What may be the possible cause for such a deal that was about to be finalized get a fall through? What is being missed? When parties are having their conversation or negotiation over some point then its all comes under a verbal agreement, the missing part is written documentation that both the sides require to agree upon. Peoples usually forgot few points that have been discussed or about what was agreed and what was not, which is why the problem occurs and a verbal agreement leads to a failure. In order to avoid this letter of intent or memorandum of understanding is required so that both the parties may believe that what they have agreed upon. A good negotiator knows the value of memorandum of understanding.
What is Exclusive or Non-Exclusive memorandum of understanding?
A memorandum of understanding can be elite or non-elite both. When exclusive MOU is prepared then parties are kept restrained from agreeing with a similar memorandum of understanding with other entities until the term of first MOU is finished. Whereas on the other hand for non-exclusive MOU the parties are allowed to enter into another similar Memorandum of Understanding with other entity. If in case, you are uneasy that your rivals may likewise approach your party and may begin transactions with them, then in this you can go into a MoU on a selective premise with another party. This would imply that amid the term of the Memorandum of Understanding, your party is banished from consulting with some other entity.
What Is The Role of Confidentiality in MOU?
It is essential to understand and analyze the nature and present state of other party with which you are going to negotiate. We all are aware that no party invests without gaining complete knowledge about the other party which is going to invest with you. If you want to make sure that your information have not been shared with your rival parties then a very important clause known as comprehensive confidentiality must be included in every memorandum of understanding. Before writing a memorandum of agreement you must point a clause which states that all the statements exchanged between the parties will be kept confidential and will never be disclosed in the public. MoU could be a one page document as well as it could contain several pages there is not a specific format or it. The contents and its form is completely dependent upon the deal that you are going to present the agreement with your clients. It make sure that after signing an MOU, parties cannot back out of a deal under any circumstances without facing any consequences.