Franchising allows companies to expand without the risk of debt or the cost of equity. It also allows for expansion with minimal capital investment on the part of the franchisor. When deciding to franchise, the company will need to create a franchise agreement with the help of an experienced attorney.

Here are the basic key provisions that are found in a franchise agreement:

1. Training and Support

Franchisors generally set up a training program for franchisees and staff. Some also include ongoing administrative and technical support.

2. Assigned territory

The agreement designates the area in which the franchise will be operated and whether or not the franchisee has exclusivity rights. This means the franchisor promises not to establish another franchise within that territory.

3. Duration

This provision states the length of the agreement. The duration can vary depending on the what the company decides.

4. Fees and Anticipated Investment

When opening a franchise, franchisees have to pay an initial franchise fee that grants them the right to use the trademark and operating system of the franchise. This fee and total anticipated investment is stated in the agreement.

5. Intellectual Property Usage

This agreement outlines how the franchisee can use the franchise’s trademark, patent and signage.

6. Royalties

In a typical scenario, franchisees are required to pay the franchise an ongoing royalty. This is often set up as a percentage of their total sales on a monthly basis.

7. Advertising

In this provision the franchisor reveals their advertising commitment and what fees the franchisee will be required to pay toward those costs.

8. Operating Protocol

The operating protocol goes into detail about how the franchisee will run their store.

9. Renewal Rights and Termination

There has to be an area in the agreement that details how the franchise can be renewed or terminated.

10. Resale Rights

Not every franchise allows the franchisee to sell. Often, the franchise will insert a clause for buyback or right of first refusal. This allows the franchisor to buy back the franchise at a rate determined by them, or to match any potential buyer’s offer who has expressed interest.

As detailed above, franchise agreements contain many provisions and clauses. Businesses wanting to franchise should talk to InnovaCounsel. We can help the company outline a franchise agreement and guide them through the process.