Discover What You Need to Know About a Franchise Agreement Contract

We’re big fans of entrepreneurs, and with thousands of franchisers in roughly 300 business categories looking to expand their footprint, there’s no shortage of opportunities for business success.  To launch your franchise, it’s vital that you have a skilled franchise lawyer guiding you throughout the process. 

In this issue, the North Carolina franchise lawyers with Weaver, Bennett & Bland will give you a basic overview of why you need a lawyer by your side and several key pieces of information you need to be aware of when becoming a franchisee.

What’s the difference between a franchisee and franchisor?
The franchisor is the “parent company” that licenses its branding, processes, etc. to the franchisee.  For example, McDonald’s has a franchising company that offers McDonald’s franchise locations to potential franchisees.  In exchange for certain payments by the franchisee, the franchisor gives the franchisee all the know-how it needs to open and operate a successful McDonald’s location.

What is a franchise agreement?
This legal and binding document serves as the franchise contract, which cements the relationship between a franchisor and a franchisee. 

In addition to outlining the responsibilities and obligations of both parties, the agreement grants the franchisee the legal rights to open and operate a franchised outlet and use the trademark, logo, business system, operations manual, etc. of the franchisor.  

What do I need to know about the franchise agreement?
While you should become intimately familiar with the entire agreement, a few clauses require special attention.

  • Territorial rights.
    In most cases, franchisees are given an exclusive territory to operate in. In these instances, the franchisor agrees not to establish another franchise in the same territory.  For non-exclusive territories, the franchisor keeps the freedom to set up other establishments within the same area with the belief that the area will sustain them.
  • Time period and renewal.
    This clause outlines the timeframe of the agreement between the franchisor and franchisee, along with terms for renewing the agreement for an extended period of time.
  • Franchisee training.
    Most franchisors will offer a training period for the entire team to make sure operations remain true to the franchisor’s business model. This clause of the franchise agreement will outline the training, as well as conferences, seminars, etc.
  • Startup costs.
    Most franchisors will require a one-time, up-front payment to become a franchisee. These costs will vary greatly depending on the segment and brand you select.
  • Advertising and marketing costs.
    This clause will outline your responsibilities as the franchisee to advertise and market the business.  It will probably include a minimum amount of money you must spend each quarter or year on your own marketing.  In addition, many franchisors require their franchisees to pay into a “corporate marketing fund,” which the franchisor uses to market the franchise throughout the U.S. or local region. 

Why do I need a franchise lawyer?
Having an experienced franchise lawyer on your side makes good business sense.  Here’s why:

  • They’ll cut through the red tape and tell you what’s important.
    Before you sign your franchise agreement, you’ll receive the massive Franchise Disclosure Document (FDD).  It’s a 150-200 page document drafted by franchise attorneys that includes every conceivable bit of information about the franchisor. Rather than deciphering this document on your own, your franchise lawyer will know exactly what to look for and will be able to identify any red flags.
  • Your lawyer will tell you what’s “normal” for a franchise like yours
    All franchises are not created equal.  With a lawyer on your side, you’ll be in a better position to negotiate favorable terms and make sure your franchise agreement protects your interests.  
  • They’ll help with your ongoing business.
    Signing your franchise agreement is just the first step in starting your new business.  You’ll probably need to form a business entity for your franchise, review and sign a commercial lease, sign a construction contract with a general contractor to build out your space, and other similar items.  

For a free consultation about franchise agreements and franchise disclosure documents, call the North Carolina franchise attorneys with Weaver, Bennett & Bland.

For many, owning a business is the epitome of the American dream. With such an abundance of franchise opportunities available, becoming a franchise can turn your dreams of financial success into reality. 

Here at Weaver, Bennett & Bland, we know the legal requirements that business owners have to meet, and we’ll gladly provide you with the expertise you need . 

Schedule your free franchise agreement consultation by calling 704.844.1400, sending an email, or completing our online form.