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Understanding franchise agreements

If you are considering going into business as a franchisee, you have probably completed your due diligence, are happy with the results and are looking forward to the next step: the franchise agreement.

Your attorney will review the contract carefully to ensure that it confirms everything the company has told you about the business. There will be multiple parts to the contract and you will want to have a thorough understanding of all of them.

The purchase agreement

The purchase agreement is usually straightforward. It consists of information about the franchise package, the services you will provide and the price. You may be able to negotiate adjustments if you are not comfortable with certain aspects of this agreement, but remember that once you sign, the terms legally bind you.

The franchise agreement

Also called a license agreement, the franchise agreement will cover your rights and obligations as a franchisee as well as the obligations of the franchisor. Other items might include trade restrictions, a termination provision and a franchisee assignment in the event of your death.

Your rights

When you become a franchisee, you will likely have a number of rights, including use of:

  • The company's brand image, premises design and décor
  • Trade names, trademarks and patents
  • Copyrighted materials
  • All applicable products, recipes, formulas and manufacturing methods which the franchisor has developed

You may also have the right to obtain products or supplies from franchisor-approved suppliers at a discount.

Your obligations

In becoming a franchisee, you will have many obligations. Among these are to carry on the franchised business and no other at the approved site, to advertise only with the consent of the franchisor, to train staff in accordance with the franchisor's methods and to maintain the business premises in a clean and sanitary manner.

Ongoing support

In addition to assistance with the successful completion of the franchise agreement, your attorney can provide advice and support throughout the term of your operation to ensure that the business runs smoothly, that policies are properly enforced and that the franchise is renewed, wound down or assigned to another, as the case may be.

Many franchises are wonderful opportunities for people with an entrepreneurial mindset, and perhaps this is just the sort of business that is right for you.

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