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What is the Franchise Agreement?

The franchise agreement is a legally binding contract between the franchisor and the franchisee. Signing the agreement allows both parties to do business together.

The purpose of the franchise agreement is to outline the obligations of both the franchisee and franchisor. The agreement is standard to all franchisees in the network. By having all franchisees sign the same document, the franchisor is ensuring consistency throughout their network.

The purpose of the franchise agreement is to:

  • Detail all duties and obligations of the franchisor and the franchisee
  • State the grounds of termination and the consequences
  • Outline the payment of the franchisee fees

What the franchise agreement covers

Though each franchise agreement varies depending on the nature of the business, there are key areas they all cover. The agreement should cover:

  • Obligations of the franchisor
  • Obligations of the franchise owner
  • The right to renew
  • Training and support
  • Fees and payment
  • Insurance
  • Trademarks
  • Sale of the business
  • Death or incapacity of the franchise owner
  • Termination

A franchisor should promise the franchisee the following:

  • To train the franchisee and their staff
  • To supply goods and/or services
  • To be responsible for marketing the franchise company
  • To assist the franchisee in finding property, fitting it out and converting into a franchised outlet (if a mobile business, the franchisor will help the franchisee to acquire a vehicle and fit it out)
  • To help the franchisee set up in business
  • To improve and develop the business system
  • To provide systems such as management and accounting, if required

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