Franchise Agreement : Your Investment Protector

Updated on December 13, 2023 03:51:09 PM

In this competitive business world building a standout business is a challenging task. Getting Franchises from a well-known brand is a significant investment for an individual who wants to accelerate their entrepreneurial future. Before obtaining a Franchise, an agreement or contract must be there that would help to protect the business and investment.

However, whether you are a franchisee or franchisor, a Franchise Agreement plays an important role in preventing a business and grants several rights to both parties. If you are also planning to give or obtain a franchise this article will help you to get a complete understanding of the Franchise, Franchise Agreement, its procedure, types and benefits.

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What is a Franchise?

The franchise is a business strategy or model, where two parties are involved to enhance the business together. In this system or model, one party is known as the “Franchisor” who owns the business and its intellectual property and the second party is called the “Franchisee” who purchases the franchise and its Trademark that aids in allowing them to sell products or service in the market by using brand name for a particular time duration.

Franchises can be seen in various fields such as fast-food restaurants to service providers. McDonald’s, KFC, Fastsign, Supercuts, and Starbucks are some popular examples of Franchises.

What is a Franchise Agreement?

A Franchise Agreement is a contract or lawful agreement between the franchisor and Franchisee. This legal document outlined all the terms and conditions to operate a branch of the Franchisor’s business. Franchise Agreements provide several rights to both parties and protect their rights also help to resolve future disputes if it would arise. The agreement clarifies all the provisions that are made by the mutual concern of both parties.

Provisions of the Franchise Agreement

  1. Location/Territory: Location is an important part of the Franchise Agreement that ensures a specific region where the franchise operates. The agreement also protects both parties' exclusive rights. In some cases, there may be restrictions or limitations on where the franchisee is allowed to advertise.
  2. Franchise Fees: The provision of Franchise Fees establishes a clearance of fees that the franchisee has to pay to the Franchisor for holding its brand title. This fee system could be monthly, yearly, quarterly and on a sales basis as well.
  3. Time Duration for Renewal: In this provision, the Franchisor mentioned the time duration or the time limits for the renewal of the franchise agreement. It is an essential point that must be mentioned in the contract that outlines the conditions of renewal, where both parties decide whether to continue the relationship after this or not.
  4. Royalty: The franchise agreement should include periodic royalty payments, which usually represent a percentage of the franchisee's gross sales. This agreement guarantees the franchisor a revenue move in exchange for continued support.
  5. Training and Support: The Franchise Agreement’s provision of Training and support is a vital component that outlines the level of support of the franchisor for providing training to the franchise for running a good business. This section often includes detailed instructions on the business model, operational procedures, marketing tactics, and best practices for customer service.
  6. Marketing and Campaigning: This part describes the franchisee's marketing and advertising responsibilities and may include contributions to a marketing fund for national or regional advertising campaigns.
  7. Intellectual Property: It refers to the use of the franchisor's trademarks, logos, and other intellectual property, ensuring that they are safeguarded and used lawfully.

Procedure for Drafting Franchise Agreement

Drafting a Franchise Agreement might be a complex task where a deep understanding is required for a lawful procedure. Given steps below will clear the whole procedure step-wise:

Step 1: Understanding the Business Model

At the initial stage of Trademark Assignment, both parties must have a mutual consultant. Therefore, the Assignor and Assignee negotiate the terms and conditions of the Trademark Assignment. This negotiation includes the type of agreement (e.g. complete assignment or partial assignment), limitations and specific rights that are being transferred.

The individual should also research the franchise opportunity thoroughly to understand the industry, potential competitors, and the target market. This will provide a better understanding of the franchise opportunity and help to ensure the success of the venture.

Step 2: Sick Legal consultation

When the individual decides to operate the franchise after getting a complete understanding of the business, they must consult with a lawyer. Drafting a Franchise Agreement, it is critical to hire a lawyer who specialises in franchising law.

“Litem Legalis” is the best choice if you are looking to draft a Franchise Agreement with many years of experience in this field.

Step -3: Determining Key Provisions

Whether you are a franchisee or franchisor, both parties must determine key provisions during the drafting Franchise Agreement. If you hire a professional lawyer, they guide you through the whole provision which will be beneficial for business protection. Territory, Royalty, fees, advertising, marketing, support, and renewal policies are the common provisions that must be included in the contract.

Step -4: Review and Revise

After Drafting the Franchise Agreement, it must be reviewed and revised to refine the policies and strategy once again and make low chances of risk. This repeated procedure not only increases the contract's enforceability but also promotes trust, ensuring that both parties' interests are well-represented and protected.

Step 5: Finalisation and Execution

The final draft of the Franchise Agreement is written once all parties are satisfied and all issues have been resolved. To make the document legally binding, both the franchisor and franchisee must sign it in the presence of witnesses or a notary public.

Advantages of Franchise Agreement

The benefits/Advantages of a Franchise Agreement are as follows:

  1. Franchisees can gain a competitive advantage by operating under established brands that are recognized by the market, so they can attract customers more quickly than if they were starting from scratch.
  2. Franchisors provide initial training as well as continuous support to franchisees, ensuring they have the essential skills and resources for success.
  3. The agreement often provides franchisees a certain region, protecting them from direct competition with other franchise businesses.
  4. Franchisors can expand structured and strategically without investing heavily in new outlets, as franchisees provide the funds.
  5. The agreement specifies rules and regulations that franchisees must follow to ensure a common brand and uniform quality of products and services across all locations.

Litem Legalis as your Attorney

“Litem Legalis” is the best platform for selecting your franchise attorney. We investigate deeply into the complexities of franchise agreements to protect your interests. We use our years of expertise to advise you through the negotiation process, maintain regulatory compliance, and protect your interests. Our objective is to provide able legal guidance to ensure that your franchise journey is effortless, secure, and successful."

There are several other reasons given below that clarify your doubt and make your choice best:

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A franchise agreement is a legally binding agreement that involves both the franchisor's and the franchisee's rights and duties. It is a vital agreement that forms the basis of the franchise relationship. Both parties can guarantee that their interests are protected and that the franchise partnership is set up for success by carefully considering the important clauses of a franchise agreement.

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Frequently Asked Questions (FAQs)

What is a Franchise Agreement?

Franchise Agreements are contracts between franchisors and franchisees. The document outlined all the terms and conditions of operating a branch of the Franchisor's business.

Who is the Franchisee?

A franchisee is an individual or entity that receives the rights to operate a business under a franchisor's established brand, following specific guidelines, for a fee or royalty.

Who is a Franchisor?

A franchisor is a company or individual that grants franchisees the licence to operate a business using their established brand, products, and operational methods in exchange for fees and royalties.

In which Act, the Franchise concept has been mentioned?

There is no specific Act for the Franchise concept, but there are several Acts that prevent this concept. The Copyright Act of 1957, Trademark Act of 1999, Indian Contract Act of 1872 and Consumer Protection Act of 1986 are some examples of them.

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