What is Included in a Franchise Agreement?

Carefully review franchise terms and conditions before signing an agreement.

In a franchise agreement, the franchiser is the company providing use of a service, trademark or brand. The person who wants to operate the franchise is the franchisee. The franchise agreement is a legal contract that stipulates what the franchiser expects of the franchisee and what the franchisee can expect from the franchiser. It also spells out the details of the franchise plan.

Franchise Classification

The franchise agreement explains how the business arrangement is classified. A product distribution franchise simply authorizes you to use the franchiser's goods, trademark and logo. In a business format franchise, the franchiser requires you to abide by its marketing strategy and conduct your business according to its standard operating procedures.

Business Arrangement

The two types of franchise business arrangements are single-unit and multi-unit franchises. The franchise agreement allows you to create one franchise location, with the opportunity to open more, in a single-unit arrangement. Under a multi-unit agreement, the franchiser grants you the right to operate more than one franchise unit.

Fees

The agreement lists start-up fees and initial investment amounts the franchisee is required to pay. In addition, the contract specifies the monthly royalty structure payable to the franchiser.

References

• IFA Educational Foundation: An Introduction to Franchising
• Quintessential Careers: Franchising Pros and Cons

Resources

• Franchise Direct: Franchising Opportunities