Writing a Franchise Agreement

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

The importance of a well-drafted franchise agreement can’t be understated when it comes to starting a successful franchise business. This document serves as the cornerstone between the franchisor and franchisee, outlining the rights, responsibilities and obligations of both parties. Without an accurate and up-to-date agreement in place, both parties risk not being fully protected and can end up in murky legal waters.

A thorough franchise agreement is essential for protecting the interests of all sides involved, ensuring that the franchisor’s needs are met and that the franchisee is informed about their obligations. What’s more, this document can help to reduce disputes between either side by eliminating any grey areas or uncertainties with regards to agreed terms – provided it has been drafted correctly. Crucially, this also helps with compliance; ensuring that any existing laws or regulations are adhered to, giving both individuals better grounds for security.

For those wanting assistance when creating such a document – but without having to pay an expert lawyer – there’s Genie AI; offering millions of data points which teach its AI what constitutes a market-standard agreement and providing users with access to a comprehensive library of high quality templates which they can use as they please. However it’s important to note; while using this guide does not require you having a Genie AI account today, one may need one if they wish pursue more detailed advice on how best craft their own agreement according to specific context or locale – such as if franchises operate across multiple jurisdictions or states - something our team could offer further guidance on should you need it further down the line.

In conclusion; drafting an effective franchise agreement is essential for those looking for success in their business venture - so make sure you take your time getting this right! Read on below for our step-by-step guidance and information on how you can access our template library today!

Definitions

Franchise Business Model: A type of business where an individual or company has the right to use a brand name, products and/or services in exchange for payment.
Franchise Agreement: A legally binding document that outlines the terms and conditions between a franchisor and a franchisee.
Franchise Fee: An upfront payment made by a franchisee to the franchisor in exchange for the right to use the franchisor’s brand name, products and/or services.
Royalties: A percentage of the franchisee’s sales that is paid to the franchisor on a periodic basis.
Exclusivity Clause: A clause in a franchise agreement that prohibits the franchisee from operating similar businesses in the same area.
Training Requirements: The training that a franchisee must complete in order to understand and operate the franchise business.
Renewal Options: The option for the franchisee to extend their franchise agreement for an additional period of time.
Dispute Resolution: The process of resolving conflicts between parties in a franchise agreement.
Regulatory Requirements: Rules and regulations set by local, state and federal governments that must be followed when starting and running a franchise business.

Contents

1. Overview of the Franchise Business Model
2. Researching the Different Types of Franchises
3. Investigating Potential Franchise Opportunities
4. Understanding the Different Types of Franchising
5. Identifying the Business Model of the Franchise
6. Examining the Franchise Agreement
7. Comparing Different Franchises
8. The Legal Requirements for Starting a Franchise Business
9. Complying with Local Laws and Regulations
10. Meeting the Financial Requirements for Franchising
11. Drafting a Franchise Agreement
12. Outlining the Roles and Responsibilities of Each Party
13. Assigning Franchisee Royalties and Fees
14. Defining the Territory for the Franchise
15. Key Components of a Franchise Agreement
16. Identifying the Franchisee’s Initial Investment
17. Specifying Training Requirements for the Franchisee
18. Establishing the Franchisee’s Duration of Ownership
19. Negotiating a Franchise Agreement
20. Discussing the Terms of the Franchise Agreement
21. Negotiating Any Amendments to the Franchise Agreement
22. Finalizing the Franchise Agreement
23. Dispute Resolution Options
24. Identifying Potential Disputes and Resolutions
25. Drafting a Dispute Resolution Clause in the Franchise Agreement
26. Compliance and Regulatory Requirements
27. Understanding the Local and State Regulations
28. Ensuring the Franchisee is in Compliance With the Rules and Regulations
29. Ongoing Franchise Support and Marketing
30. Establishing Ongoing Communication Between Franchisee and Franchisor
31. Designing a Marketing Plan for the Franchise
32. Best Practices for Successful Franchising
33. Developing a Strategic Plan for the Franchise
34. Setting Performance Goals and Measuring Results
35. Identifying Resources for Ongoing Franchise Support

Get started

Overview of the Franchise Business Model

• Understand the basics of the franchise business model: what it is, how it works and what the key benefits are.
• Research franchising laws and regulations in your area to ensure your franchise agreement is in compliance.
• Familiarize yourself with the different types of franchises (e.g. product, service, business format, etc.) and their associated fees.
• Identify any potential challenges or drawbacks to franchising your business.

When you can check this off your list:

• When you have a good understanding of the basics of the franchise business model, laws and regulations in your area, types of franchises and their associated fees, and potential challenges or drawbacks to franchising your business.

Researching the Different Types of Franchises

• Research the different types of franchises, such as single-unit, multi-unit, and area-development franchises.
• Understand the differences between these types of franchises, and what types of franchises may be best for you.
• Learn about the types of businesses that can be franchised, such as restaurants, retail stores, and service-based businesses.
• Read up on the legal requirements associated with franchising, such as disclosure documents and registration requirements.
• When you are familiar with the different types of franchises, and understand the legal requirements, you can move on to the next step.

Investigating Potential Franchise Opportunities

• Identify franchises that offer the type of business you’re interested in.
• Read reports and research the performance of these franchises.
• Contact existing franchisees and ask them questions about their experiences.
• Attend franchise trade shows and talk to franchisors.
• Research the financial requirements for the franchises you’re considering.

Once you have completed the above steps, you can move onto the next step of understanding the different types of franchising.

Understanding the Different Types of Franchising

• Become familiar with the different types of franchising, such as business-format franchising, product and trade name franchising, and manufacturing franchising.
• Research the advantages and disadvantages of each type of franchising.
• Consider the various franchise fees, royalties, and other costs associated with each type of franchising.
• When you have a good understanding of the different types of franchising, you can move on to the next step in the guide.

Identifying the Business Model of the Franchise

• Research the different types of business models for franchising, such as single-unit, multi-unit, regional, and master franchising
• Analyze which model works best for the business and the franchisee
• Decide on the business model that works best for the franchise agreement
• Make sure to communicate the business model and its limitations to the franchisee
• This step is complete when you have identified the business model for the franchise agreement.

Examining the Franchise Agreement

• Read through the franchise agreement in detail to understand the franchise’s obligations and rights
• Make sure the agreement is legally binding and meets the requirements of the franchise
• Create a checklist of the key points to consider during the examination of the agreement
• Check that the agreement is compliant with local, state, and federal laws
• Highlight any areas of the agreement that may need to be amended
• Make sure the agreement is clear and concise
• Confirm that all parties involved in the agreement are in agreement
• Once all points have been addressed, the franchise agreement can be signed and finalized.

Comparing Different Franchises

• Research the different franchises available and analyze the advantages and disadvantages of each
• Compare the fees, royalties, services, and support offered by each franchise
• Examine the financial performance of each franchise
• Consider the location, customer base, and marketing strategies of each franchise
• Evaluate the experience and track record of each franchise’s management team
• When you have compared the different franchises and chosen the best one, you can check off this step and move on to the next step.

The Legal Requirements for Starting a Franchise Business

• Research the laws governing franchises in your state, including the local registration and licensing requirements.
• Contact the Secretary of State or a local business attorney for assistance in understanding the legal requirements.
• Carefully review the franchise disclosure document and franchise agreement.
• Determine if there are any federal or state laws that you must comply with as a franchisee.
• Obtain the required licenses and permits needed to start your franchise business.
• Make sure any contract you sign meets the local legal requirements.

When you can check this off your list:

• You have researched the laws governing franchises in your state.
• You have contacted the Secretary of State or a local business attorney for assistance in understanding the legal requirements.
• You have carefully reviewed the franchise disclosure document and franchise agreement.
• You have determined if there are any federal or state laws that you must comply with as a franchisee.
• You have obtained the required licenses and permits needed to start your franchise business.
• You have made sure any contract you sign meets the local legal requirements.

Complying with Local Laws and Regulations

• Research local laws and regulations for franchise businesses in your area
• Determine which regulations and laws apply to your franchise business
• Contact your local government and ask for assistance if needed
• Make sure you are compliant with all regulations and laws applicable to your franchise
• Once you have all the necessary information, review and update any existing franchise agreement to ensure it meets the local laws and regulations
• Keep copies of all relevant documents related to your franchise agreement
• Check off this step when you feel confident that all necessary local laws and regulations have been met, and that your franchise agreement is compliant.

Meeting the Financial Requirements for Franchising

• Contact an accountant to understand the financial requirements of franchising
• Gather the financial documents needed to prove your franchise is financially sound
• Create a budget that can support the franchise’s operations and income
• Consider the cost of any necessary insurance policies
• Obtain a business loan or other financing to cover the cost of franchising
• Once you have gathered the financial information and documents and have the necessary financing in place, you are ready to move on to drafting a franchise agreement.

Drafting a Franchise Agreement

• Research existing franchise agreements, and consult an attorney who specializes in franchises to understand the legal requirements
• Create a draft of the franchise agreement outlining all terms and conditions related to the franchisor and franchisee, including the scope of the franchise, fees, training requirements, territory, etc.
• Make sure the agreement is comprehensive and legally compliant
• Have the agreement reviewed by an attorney to ensure all legal requirements are met
• Once the agreement is finalized, both parties can sign it and the franchise agreement will go into effect

How you’ll know when you can check this off your list and move on to the next step:

• When the franchise agreement is finalized and both parties have signed it, you can move on to the next step.

Outlining the Roles and Responsibilities of Each Party

• Discuss each party’s individual roles and responsibilities in the franchise agreement
• Determine the roles of the franchisor and franchisee and how they interact
• Specify what the franchisor will provide to the franchisee, such as trademarks and ongoing support
• Set out the obligations of the franchisee, such as minimum standards for the business
• Include any restrictions and limitations that the franchisor wishes to impose
• Outline how disputes between the franchisor and franchisee will be handled

You’ll know this step is complete when you have a clear understanding of each party’s roles and responsibilities, and when these have been outlined in the franchise agreement.

Assigning Franchisee Royalties and Fees

• Determine what percentage of the franchisee’s gross sales will be paid to the franchisor as royalties
• Specify what fees the franchisee is responsible for when they enter into the agreement, such as a lump sum or ongoing payments
• Include any additional fees that may be associated with the franchise agreement, such as advertising fees
• Outline the payment schedule for all royalties and fees, including the due dates and late fees for any missed payments
• Specify the method of payment for all royalties and fees

When you can check this off your list and move on to the next step:

• When you have outlined the percentage of gross sales paid to the franchisor as royalties, specified all fees associated with the agreement, and outlined the payment schedule and method for all royalties and fees.

Defining the Territory for the Franchise

• Define the geographic area covered by the franchise agreement. This can be a specific city, state, or country, depending on the scope of the franchise.
• Outline any rules or restrictions on the franchisee’s ability to operate in the defined territory. These regulations should include a stipulation that the franchisee must obtain all necessary business licenses and permits in order to operate in the outlined area.
• Determine if the franchisee has exclusive rights to the territory, or if there are other franchisees operating in the same area.
• Specify any limitations on the franchisee’s ability to expand their business outside of the defined territory.

When you can check this off your list and move on to the next step:

• You will know when you have completed this step when the franchise agreement clearly defines the territory for the franchise, outlines any rules or restrictions on the franchisee’s ability to operate within that territory, and specifies any limitations on the franchisee’s ability to expand their business outside of the defined territory.

Key Components of a Franchise Agreement

• Identify the franchisor and franchisee, and the franchisee’s obligations
• Outline the fees associated with the franchise agreement, including royalty fees, advertising fees, and other fees
• Define the franchisee’s rights, including the right to use the franchisor’s trademarks, logos, and other intellectual property
• Specify the length of the franchise agreement and the process for renewing or terminating the agreement
• List the franchisor’s obligations to the franchisee, such as providing training and support
• Include a clause to protect confidential information
• Identify the dispute resolution process

When you can check this off your list and move on to the next step: Once you have included all the key components of a franchise agreement in your document, you can move on to the next step.

Identifying the Franchisee’s Initial Investment

• Determine how much the franchisee will pay for initial franchise fees and other costs associated with setting up the franchise
• Research the costs associated with the franchise’s territory and other associated costs
• Specify the exact amount of the franchisee’s initial investment
• Negotiate and agree on the initial investment cost with the franchisee
• Include a specific timeline for when the franchisee must pay their initial investment
• When you’ve agreed on, and determined the franchisee’s initial investment, you can move on to the next step - specifying training requirements for the franchisee.

Specifying Training Requirements for the Franchisee

• Determine the type of training needed for the franchisee to operate the business
• Research the cost of training and the amount of time it will take
• Create a training program outline that covers all the necessary information
• List out the training requirements in the franchise agreement
• Make sure to include the language about who will be responsible for the training costs
• Define a timeline for when the training should be completed

Check off this step when you have clearly outlined the training requirements in the franchise agreement.

Establishing the Franchisee’s Duration of Ownership

• Research the local laws regarding minimum and maximum durations for a franchise agreement
• Clarify the terms of the franchise agreement with the franchisee, including the duration of the agreement, any renewal or termination options, and any fees associated with renewal or termination
• Include a clause stating that either the franchisor or franchisee may terminate the agreement at any time, as long as they provide the other party with written notice
• Outline any renewal terms including fees and obligations of the franchisee and franchisor
• When you have established the desired duration and terms of the franchise agreement, you can check this step off the list and move on to the next step.

Negotiating a Franchise Agreement

• Be sure to include the exact terms of the agreement in writing
• Have both parties sign the agreement once the details are finalized
• Establish a timeline for when payments will be due and what will happen if payments are late
• Include a clause that outlines the process for resolving disputes between the parties
• Discuss the termination process if either party wishes to end the agreement
• Once the franchise agreement is finalized, make sure to have both parties sign and date the agreement
• You will know you can move on to the next step when the franchise agreement has been negotiated, signed, and dated.

Discussing the Terms of the Franchise Agreement

• Understand the terms of the franchise agreement in detail
• Discuss any potential changes or amendments with the franchisor
• Make sure that both parties understand and agree to the terms of the franchise agreement
• Negotiate any changes to the agreement that are needed
• Get legal advice if needed to ensure all terms comply with the applicable laws
• Once the terms of the franchise agreement are agreed upon, both parties can sign the document
• Once the agreement is signed, you can move on to the next step of negotiating any amendments to the franchise agreement.

Negotiating Any Amendments to the Franchise Agreement

• Make a list of any changes you want to negotiate to the franchise agreement
• Meet with the franchisor to discuss the amendments and try to reach an agreement
• Review the revised agreement for any further changes you would like to make
• Make sure any amendments are in writing and formally signed by both parties
• Confirm that you have all the signed amendments before signing the final agreement

You know you can check this off your list and move onto the next step when both parties have agreed on and signed all amendments to the franchise agreement.

Finalizing the Franchise Agreement

• Obtain signatures from both the franchisor and franchisee on the agreement
• Have all parties initial each page of the agreement
• Make sure the appropriate parties have notarized all signatures that require notarization
• Make copies of the fully-executed agreement for all parties
• Have the franchisor and franchisee exchange signatures on all documents related to the agreement
• When all documents and signatures have been exchanged, the agreement is considered finalized
• Check off the completion of this step and move on to the next step of Dispute Resolution Options

Dispute Resolution Options

• Review any governing regulations in the target area that require specific dispute resolution options to be included in the franchise agreement
• Identify potential disputes that could arise and create a plan for how disputes will be resolved
• Consider including an arbitration clause in the franchise agreement that allows for a neutral third party to resolve disputes
• Draft language to include in the franchise agreement that outlines how disputes will be handled
• Once the dispute resolution options have been identified and added to the franchise agreement, the document is ready for review and signatures.

Identifying Potential Disputes and Resolutions

• Research common issues that arise in similar types of franchise agreements
• Consult with legal counsel to identify potential disputes
• Identify potential resolutions for each dispute
• Take notes on each potential dispute and resolution
• Use the notes to draft a dispute resolution clause in the franchise agreement

You’ll know you can check this off your list when all the potential disputes have been identified and potential resolutions have been noted down.

Drafting a Dispute Resolution Clause in the Franchise Agreement

• Consider the type of dispute resolution clause that would be appropriate for the franchise agreement. Options could include arbitration, mediation, or litigation.
• Decide which clause is most appropriate and draft the language accordingly.
• Make sure that the clause is legally binding on both parties and clearly outlines the procedures and processes for resolving disputes.
• Consider adding a provision that requires disputes to be resolved within a specific time frame.
• When the dispute resolution clause is finished, review it with the franchisor and the franchisee to ensure that everyone is in agreement.
• Once the clause is approved by both parties, the dispute resolution clause can be added to the franchise agreement.
• When the clause is added, the step of drafting a dispute resolution clause is complete and you can move on to the next step.

Compliance and Regulatory Requirements

• Research the local and state regulations that are applicable to the franchise agreement
• Understand the requirements for the franchise agreement to comply with these regulations
• Draft clauses in the franchise agreement to ensure that the necessary compliance requirements are met
• Analyze the clauses and make sure that they are appropriate for the business and the specific situation
• Get legal advice to make sure that the clauses are in accordance with the applicable regulations
• Once all the compliance requirements are met, the franchise agreement is ready to be signed by both parties

You will know that you have completed this step when you have researched, drafted, and analyzed all the necessary clauses to ensure compliance with the applicable regulations.

Understanding the Local and State Regulations

• Research the local and state regulations relating to the franchise agreement and any applicable licensing requirements.
• Make sure you are familiar with the regulations that are applicable to the franchise agreement.
• Consult with a lawyer or franchising specialist to ensure that the agreement is in compliance with all applicable laws.
• Draft the appropriate clauses that comply with the regulations and other legal requirements.
• Once you have completed the research, drafted the appropriate clauses, and consulted with a lawyer or franchising specialist, you can move on to the next step.

Ensuring the Franchisee is in Compliance With the Rules and Regulations

• Contact the local and state authorities to ensure that the franchisee will meet all of the necessary requirements
• Draft a franchise agreement that outlines all of the necessary rules and regulations that the franchisee must adhere to
• Send the franchise agreement to the franchisee for review and signature
• Once the franchise agreement is signed, keep a copy on file
• Follow up with the franchisee to ensure that they are in compliance with the rules and regulations outlined in the franchise agreement
• Check this step off your list once you have a copy of the signed franchise agreement on file and the franchisee is in compliance with the outlined rules and regulations.

Ongoing Franchise Support and Marketing

• Identify the ongoing support and marketing services that will be provided by the franchisor.
• Ensure that the franchisee understands the importance of participating in the ongoing support and marketing services provided by the franchisor.
• Include information regarding any additional costs that the franchisee may incur due to the ongoing support and marketing services.
• Specify the amount of time that the franchisor is allowed to use the franchisee’s business name or logo for marketing purposes.
• Outline how the franchisor and franchisee will collaborate on any marketing activities.
• When the above points are agreed upon and outlined in the franchise agreement, you have successfully completed this step and can move on to the next step.

Establishing Ongoing Communication Between Franchisee and Franchisor

• Determine the methods for ongoing communication between the franchisee and franchisor, such as email, phone, text message, or other.
• Set up an agreed-upon schedule for communication, such as daily check-ins, weekly meetings, monthly reports, etc.
• Make sure that communication is clear and consistent, with the franchisee and franchisor understanding each other’s expectations.
• Agree on how you will resolve disputes and other issues that may arise during the course of the franchise agreement.

You will know you have completed this step when you have established methods of communication and a schedule that both parties can agree upon and adhere to.

Designing a Marketing Plan for the Franchise

• Develop a plan for how to market the franchise, including strategies for advertising and promotion
• Outline the specific methods or channels that will be used to reach potential customers
• Consider which types of media (e.g. radio, TV, print, etc.) make the most sense for the franchise
• Determine the budget for marketing and advertising activities
• Monitor the results of the marketing plan and adjust as needed
• When you have a comprehensive marketing plan in place, you can check this step off your list and move on to the next step - Best Practices for Successful Franchising.

Best Practices for Successful Franchising

• Develop a clear mission statement so that all franchisees understand the goals of the franchise.
• Outline the roles and responsibilities of both the franchisor and franchisee.
• Create an organizational chart that defines the roles of all parties within the franchise.
• Establish a system to monitor the performance of franchisees to ensure that they are meeting their obligations.
• Establish a system to provide guidance and support to franchisees.
• Develop a system to handle disputes between franchisees and franchisors.
• Develop a system to provide feedback to franchisees on their performance.

Once you have completed the best practices for successful franchising, you will have completed this step and can move on to the next step.

Developing a Strategic Plan for the Franchise

• Identify the goals of the franchise and the intended impact
• Create a mission statement to represent the core values of the franchise
• List the target markets and develop a plan to reach those markets
• Analyze the competition and create a plan to differentiate the franchise
• Develop strategies and tactics to reach the desired goals
• Set objectives and measure progress
• Create a timeline of activities
• Assign responsibilities to team members

You can check this step off your list once you have created a strategic plan that includes goals, mission statement, target markets, competition, strategies & tactics, objectives, timeline, and responsibilities.

Setting Performance Goals and Measuring Results

• Set performance goals for the franchisee and the franchisor that are measurable and achievable
• Outline the criteria that will be used to measure progress, including financial metrics and customer satisfaction
• Establish a system for monitoring the performance of the franchisee, including regular reporting and evaluation
• Include penalties for non-performance, such as late fees, that will be assessed if performance goals are not met
• Once performance goals and measurements are clear, the franchise agreement can be finalized and signed
• Once the franchise agreement has been signed, the performance goals and measurements should be regularly monitored and reviewed to ensure compliance

Identifying Resources for Ongoing Franchise Support

• Research and compile a list of available resources for ongoing franchise support, such as legal advice, tax guidance, and other industry advisement
• Identify local, regional, and/or national organizations which can provide ongoing support to the franchise and its franchisees
• Outline the type of support each resource can provide and determine how much access each resource will have to the franchise
• Contact each resource to ensure they can properly support the franchise
• Document the contact information and level of access each resource has to the franchise
• When all resources have been identified and contacted, you can check this off your list and move on to the next step.

FAQ

Q: Does a franchise agreement need to be written? Asked by Mary on April 3, 2022

A: Generally speaking, yes. A franchise agreement should be written to ensure that both the franchisor and the franchisee have clear and unambiguous terms governing their relationship. A written agreement helps to protect both parties from potential misunderstandings or disputes that might arise down the line. It also helps to establish expectations for both sides and provide cover for any disputes or disagreements that might arise.

Example dispute

Suing a Franchisor

• A plaintiff may raise a lawsuit referencing a franchise agreement if the franchisor has breached the agreement in some way.
• The plaintiff may have a right to sue for breach of contract, misappropriation of trade secrets, trademark infringement, or violation of fair competition laws.
• The plaintiff must be able to prove that the franchisor has violated the terms of the agreement, and that the plaintiff has suffered damages as a result.
• The plaintiff may also be able to seek compensation for attorney’s fees, punitive damages, and other losses.
• Depending on the facts of the case, settlement may involve a lump sum payment or an ongoing revenue stream for the plaintiff.
• Damages may be calculated based on lost profits, costs in recovering lost profits, or a combination of both.

Templates available (free to use)

Cross Border Franchise Agreement International
Franchise Agreement
International Franchise Agreement
Master Franchise Agreement
Master Franchise Agreement Exclusive Within A Territory
Master Franchise Agreement For Exclusive International Expansion
Master Franchise Agreement For Exclusive International Expansion E
Simple Franchise Agreement Non Exclusive Contract
Standard Franchise Agreement

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