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Understanding the franchise documents

Key aspects of the franchise agreement

The franchise document is a legally binding agreement that specifies the different terms and conditions that the franchisor has for the franchise owner. In other words, it defines the relationship between the 2 parties. It also outlines the obligations that the franchisor has towards the franchise owner.

The following are the key aspects of any franchise agreement:

Trademarks

The rights to use a popular trademark id a key benefit of purchasing a franchise. The agreement will clearly define how the trademark and logos can be used. Things to consider here is how popular the trade mark is, how long it has been in operation and what the restrictions on its use are.

Franchise Location

This aspect of the agreement will define the area of operation for your franchise. It is important to check if you will have exclusive rights in that area or if there will be other franchise owners present.

Franchise Term

This will define the duration for which the franchise rights have been purchased. It is necessary to check if the franchise can be renewed by you and if the franchisor can purchase the franchise before the term expires.

Fees and Payments

The franchise fees will be clearly stated including what the initial fee and ongoing fees (including royalties) amount to and what the franchise owner gets in exchange for those fees.

Franchise Owner’s Obligations

The franchise owner’s responsibilities will be defined in this section. Common aspects include the requirements for training, participation in the business and how records must be kept and shared.

Product/Service Restrictions

This section will outline the restrictions placed on selling the product/service including quality standards, supplies that can used, advertising collateral, business hours, pricing, etc.

Renewal, Termination and Transfer

As the name suggests this will cover the renewal process for the franchise, the rights and obligations of both parties in case of termination of the franchise and details about how the franchise can be transferred.

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