What is in a Franchise Agreement Document?

The franchise agreement is the cornerstone document of the franchisee-franchisor relationship. This document is legally binding on both parties and lays out the rights and obligations of each. A sample agreement may either be attached to the disclosure statement or presented separately. Either way, you are entitled to receive it as a prospective franchisee five business days before signature. You should have it reviewed by a lawyer familiar with franchise matters, especially since most agreements are extremely one-sided in favor of the franchisor. No one should enter into a franchise agreement and expect to have an evenly drawn contract.

The agreement will contain provisions covering, in considerable detail, the obligations of the franchisor (the company) and franchisee (you) regarding operating the business; the training and operational support the franchisor will provide (and at what cost); your territory and any exclusivity; the initial duration of the franchise and any renewal rights; how much you must invest; how you must deal with things such as trademarks, patents and signs; what royalties and service fees you will pay; tax issues; what happens if you should want to sell or transfer the franchise; advertising policies; franchisee termination issues; settlement of disputes; and cancelling of the franchise by the franchisor.

There is no standard form of a franchise agreement because the terms, conditions, and the methods of operations of various franchises vary widely depending on the type of business involved. For example, franchises for printing, employment agencies, and automotive products will differ from the franchises for fast food service, convenience stores, or clothing.