A Franchise Agreement is a legal, binding contract between a franchisor and franchisee, enforced in the United States at the State level.
Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule .The Franchise Rule requires that a franchisee be supplied a Uniform Franchise Offering Circular (UFOC ) or Franchise Disclosure Document (FDD ) prior to signing a franchise agreement, a minimum of ten days before signing a franchise agreement.
Once the Federal ten-day waiting period has passed, the Franchise Agreement becomes a State level jurisdiction document. Each state has unique laws regarding franchise agreements.
The content of a franchise agreement can vary depending on the franchise system, the state jurisdiction of the franchisor, franchisee, and arbitrator.
A typical franchise agreement contains :
Legal documents
Franchising agreements contain many legal documents that must be understood and filled out.
- Uniform Franchise Offering Circular (UFOC) or FDD Franchise Disclosure Document (FDD)
- Disclosures required by state laws
- Parties defined in the agreement
- Recitals, such as Ownership of System, and Objectives of Parties
- Definitions, such as: Agreement, Territory Area, Area Licensee, Authorized deductions, Gross Receipts, License Network, The System Manual, Trademarks, Start Date, Trade name, Termination, Transfer of license.
- Licensed Rights, such as: Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard
- Franchisors Services, such as: Administration, Collections and Billing, Consultation, Marketing, Manual, Training
- Franchisee Payments, such as: Initial License Fee, Training Fees, Marketing Fund, Royalties, Renewal fee, and Transfer fee
- Franchisee Obligations, such as: Use of Trademarks, Financial Information, Insurance, Financial and Legal responsibility
- Relationship of Parties, such as: Confidentiality, Indemnification, Non-Compete
- Transfer of License, such as: Consent of franchisor, Termination of license, Termination by licensee, Termination by licensee
- Other provisions
- Governing law
- Amendments
- Waivers
- Arbitration
- Severability