Updated: Oct 9
Do you know that one of the primary movers or triggers of any successful business is the legality? Without proper legal works, a business won’t be able to jumpstart any form of legitimate transaction.
In terms of franchising, one of the most important legal documents is the franchise legal agreement. This document legally forges the relationship between a franchisor and a franchisee. Without it, a lot of business-related threats, mishaps, and breaches could be committed both intentionally and inadvertently by all parties involved.
The franchise agreement is what defines and details the franchise relationship. It specifies in particular the obligations and responsibilities of the franchisee to the franchisor and vice versa.
So, who is in-charge of writing it?
The franchisor is basically the one who drafts the document. However, the franchisee is also allowed to review it before any signing happens. In the process of review, the franchisee must carefully read and understand all the contents of the agreement and consult a trusted legal counsel for advice and peace of mind.
If ever some revisions are needed to be done, the franchisee must inform the franchisor for approval. It is only when both parties agree to all the clauses can a signing happen and that will make the partnership official.
How long does it usually take to write a franchise agreement?
There are two stages in producing a franchise agreement: the pre-work and the actual writing process. The pre-work consists of determining the fees and developing the contract details such as term, renewal, transfer of ownership, etc. All these data should be equitable and must result to a win-win situation for both parties.
For franchisors, it won’t do any good for their business if the data and numbers in their franchise agreement are not well thought of. Even if other businesses have 3% royalties, it doesn’t mean that they should impose 2% or lesser royalty fee, just to set their brand apart and make it more marketable. Franchisors should think that these percentages and fees should efficiently cover expenses and services such as opening support, store visits, employee salary, etc.
Meanwhile, the writing process usually takes around or less than a month until every detail is verified by lawyers and the agreement is finally signed. While franchisors can draft their own legal agreement with their legal counsel, it would be better to talk to franchise experts and consultants as they are the ones who specialize on this matter.
What should it contain?
The typical contents of a franchise legal agreement are the fees and payment frequency, term and renewal, training, and transfer of ownership. Different types of businesses may add more contents depending on the nature and needs of their business.
For franchisees, it is strongly advised that all parts and details of the agreement must be read, understood, and reviewed before signing. For franchisors, all possible scenarios must be contained and covered by the agreement. Overall, the details of the document should make sense for both parties.
Just like a marriage, a franchise relationship between a franchisor and a franchisee works out great if both parties are satisfied and happy. And an effective way to ensure this is to draft, finalize, and settle with a franchise legal agreement that is both fair and firm. #