Franchising is the act of a business owner (franchisor) granting permission to another person (franchisee) to operate their own company using the proprietor's name or brand. In such a partnership, the franchisor provides the franchisee with business resources, technical know-how, intellectual property, and training.
Applying the afore-mentioned in order to benefit both the franchisor and the franchisee: - Franchise is a successful business model that enables home-grown entrepreneurs to successfully run international enterprises within their own nation.
A franchise agreement is one legal document that is mutually agreed by the franchisor and the franchisee. It binds both of them into carrying out legal obligations for each other.
The duration of the franchise as well as the parties' fundamental rights and obligations are spelled out in an agreement. It is important to have a lawyer assist you in creating in the appropriate terminology since draughts of franchise agreements frequently tend to be lengthy and require legal understanding.
Purpose of a Franchise Agreement:
- Franchise agreements are binding legal instruments that obligate both the franchisor and the franchisee to abide by a set of rules.
- There is little risk of disagreement or agreement breach because both the franchisor and the franchisee benefit financially and in other ways from the partnership.
- Since the terms and conditions of the franchise agreement are mutually agreed upon, both parties enjoy a successful working relationship.
- Before bringing on the franchisee and committing them to a franchise contract, the franchisor may specify standards for the upkeep of quality pertaining to many aspects of the industry in a franchise agreement.
- The franchisor might dictate how the franchisee adopts the business and branding after a franchise agreement model is in place.
- The agreement to protect the brand name at all times specifies the penalties for poor management or violations of the corporate branding.
What Should a Franchise Agreement Include?
A Franchise Agreement should include the following:
- Details of the Franchisor and the Franchisee.
- Timeline and Validity.
- Monetary Details to Be Included.
- Site Selection.
- Business Operations.
- Intellectual Property.
- Termination Clauses.
Various statutes that govern a Franchise Agreement in India:
In India, there are a number of laws and guidelines that can be used for franchising even if there are no specific franchising legislation. These laws address issues including labour, property, taxation, intellectual property, consumer rights, and competition;
- The Competition Act, 2002
- The Indian Contract Act, 1872
- The Income Tax Act, 1961
- The Consumer Protection Act, 1986
- Intellectual Property Laws
- The Foreign Exchange Management Act, 1999
- Trade Secret laws
Benefits of a Franchise Agreement
The benefits of the franchise agreement are as follows:
- Defines the relationship: The franchisee-franchisor relationship is described in the agreement, along with the advantages and limitations that apply to each party.
- A better level of franchisor control: The contract makes sure that the franchisor, as the company's owner, has more influence over daily operations.
- Brand management: The franchise agreement gives the franchisee room to specify how to adopt the brand and business. The consequences for poor management or violations of corporate branding are laid out to safeguard the reputation and image of the brand at all times.
Franchise agreements must adhere to the Indian Contract Act of 1872's provisions. Franchises are permitted to include the disclosure requirements a part of the contract, provided that condition is met.
Key Elements of a Franchise Agreement that might protect your know how;
The key elements proposed in a Franchise Agreement are as follows:
- Franchisor’s responsibility towards advertising: Franchisors frequently invest a lot of money in marketing their brands. As a result, the franchise agreement makes it explicit that the franchisor is responsible for the franchisee's advertising expenses and that the franchisee is required to participate in branding initiatives.
- Franchisor’s responsibility towards training and support: Training and support are the duty of the franchisor, who may offer franchisees temporary or ongoing training, supervision, and assistance. The requirements for the franchisee to assist the franchisee in carrying out such operations are specified together with the obligations of the franchisor for training, supervision, and assistance.
- Terms and Agreements in Franchise Agreement: The terms and circumstances of the agreement, the terms of the agreement, the terms of renewal, and the consequences of terminating the franchise agreement must all be expressly stated in the franchise agreement.
- Transfer or Assignment of Interest of Franchise Agreement: Most franchise agreements stipulate that in order to transfer the franchisee entity or a stake in it, the franchisor must first provide its approval. Additionally, there can be clauses that grant the franchisor the authority to initially decline to take over the franchise if they want to transfer ownership.
How can a lawyer or a legal advisor help you with Franchise Agreement?
A Franchise Attorney can aid and advise to his clients and tell his clients how the agreement can protect them. The following services provided by franchise attorneys to franchise buyers:
- Providing clients with legal counsel
- Recognize central and state franchise laws
- Make sure that the franchise laws and regulations are followed by both parties
- Establish and uphold the franchise agreement.
- Defending the client in court or at hearings based on facts
- Participate in alternative dispute resolution activities
- Make sure customers follow the guidelines in the franchise agreement.
The agreement also aids in clearly articulating the elements that would help in the smooth operation of the firm because the franchisee should not feel that he is being taken for granted.
The franchise agreement is strengthened by a number of terms and provisions. It is essential to go into detail about each component and component of a franchise agreement. Important aspects that are missed could have a negative impact on the franchised business. Because of this, consulting with knowledgeable professionals and legal authorities is essential