Detroit business owners who are experiencing business growth may at some point consider franchising. As a franchisor, you agree to allow someone else, the franchisee, to use things like your brand name, operating systems and other intellectual property. These rights are spelled out in a franchise agreement.
A franchise agreement is intended to clearly specify in writing the legal rights and obligations of both the franchisor and franchisee, protecting both sides from potential legal liability or disputes down the road.
When drafting a franchise agreement, there are many requirements and things to keep in mind. Franchises are part of the Federal Trade Commission’s Franchise Rule, which lays out federal rules that franchisors must follow. It is a good idea to review these rules with an attorney before drafting a franchise agreement.
Franchise agreements are not permanent but are meant to last for a fixed period. This is typically 10 years, although some may be longer.
Some basic topics a franchise agreement covers include the specifics of any intellectual property the franchisee will use, such as brand names, slogans or graphics, and the details surrounding advertising, costs, fees and expenses. The agreement should also identify the franchise location and contain information on insurance costs and any future renovation plans.
As a franchisor, you are likely to be responsible for providing training and services to your franchisee both prior to the franchise opening and throughout the term of the agreement. The specifics of these services should be clearly detailed in the agreement.
Although everyone hopes the franchise relationship will be free of disputes or issues, a solid franchise agreement should contain terms surrounding termination or transfer of the franchise, along with a clause stating how any disputes will be resolved, such as through arbitration or mediation.
When the franchise agreement is drafted, it becomes part of a franchise disclosure document, which must be delivered to the franchisee 14 days before the contract becomes binding. The franchise agreement must be signed by both parties.
A franchise agreement is a legally binding contract. It is critical to understand each part of the agreement prior to signing, to avoid future conflicts and help you successfully franchise your business.