What Is Meant By The Term Franchise Agreement
Apart from these three main provisions, Goldman said, the rest of the agreement may vary depending on the type of franchise and size, among others. In states that do not have “good” laws, franchisees claim to be victims of franchisors who want to recover outlets that have proven to be very profitable. They accuse the franchisor of imposing impossible or ridiculous requirements that cannot be met to annoy the franchisee to resell the store to the franchisor for a fraction of its value. The company`s own outlets generate a higher profit to the franchisor than the unlicensed payments made by the franchisee. Other franchisees claim that their licences have been withdrawn or have not been renewed at expiry because they have complained to various public and federal authorities about the way franchisors work. Such controversies are generally resolved in the courtroom. Now, more info on what you`ll find in the pages of the franchise agreement. Here are 10 basic provisions that are described in one way or another in each franchise agreement: the FTC rule requires potential franchisors to provide potential franchisees with a pre-sale franchise publication document (FDD) to provide potential franchisees with the information they need to purchase a franchise. Considerations include risks and rewards, as well as comparison of the franchise with other investments. In addition, there must be a factual description of the deductible as well as a clear indication of all the funds payable, such as the initial deductible fee. B, down payments, down payments, prepaid rent on site and purchases of equipment and inventories. The terms and times for repayment and their amount must be clear, as must the amount of recurring costs such as royalties, rents, advertising and rental costs.
All restrictions imposed – such as the amount of goods or services for sale, the types of customers with whom the franchisee can trade – the geographic area and whether the franchisee is entitled to the protection of its territory by the franchisor must be discussed. The duration of the deductible must also be explained in addition to the reasons why the franchise is terminated or the franchisee`s licence cannot be renewed if it expires. Include the number of deductibles terminated or voluntarily terminated by the franchisor. The franchisor must disclose the number of franchises that made the activity at the end of the previous year as well as the number of outlets of the company. The franchisee must also be delivered with the names, addresses and telephone numbers of franchisees in the ten outlets closest to the potential franchisee`s location, so that the potential franchisee can contact them for a realistic perspective on the day-to-day operation of a franchise.