Franchise Agreement services
Franchising is an increasingly common way for a business establishment to grow. It has been the mantra for many prosperous business houses, including multinational giants. The Franchise Agreement is legally recognized as a legal, binding arrangement between the franchisor and the franchisee. The role of a franchise agreement is to give the franchisee the power to run a franchised company using the franchisor’s framework and proprietary marks.
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Franchise Agreement for business and startups in India
A Franchise Agreement is a legally binding document specifying the terms and conditions of a franchisor for a franchisee. These terms, which are usually defined in a written agreement between all parties, govern any franchise. The role of a Franchise agreement is to give the franchisee the power to run a franchised company using the franchisor's framework and proprietary marks. In layman's terms, it is an arrangement in which a well-established company (franchisor) agrees to give to another party called a franchisee its brand, operating model, and other appropriate help. In return for a fee and interest in the revenue generated, the franchisor enables the franchisee to operate a similar company. This Agreement includes the technical and legal terms and conditions that will be shared by all parties in their term of office. Franchise certificate helps to establish a cordial bond between the franchisor and the franchisee. The franchise agreement would control everything about how the franchisee is running the new company and set out what the franchisor should expect. If you plan to franchise your company or become a franchisee, learn more about what's in the agreement and what it would entail. The format of the franchise agreement will characterize the basis of the terms between the two consenting parties, identify the franchisee's remuneration (payment by way of royalty, use of the trademark, etc.), specify requirements for the use of the brand name, specify the scope of the agreement, specify terms for disciplinary provisions (differing from financial provisions). Each franchise is expected to sign a franchise agreement, which is also signed by the franchisor. A franchise agreement is a binding legal document, a warning word, and we recommend that you have a franchise lawyer review it on your behalf before signing it. Legalpillers will help in formulating a franchise contract template.
Common Franchise Businesses in India
The franchise terms and conditions are followed by these Franchises in India:
- Restaurant Franchise in India: India has a long list of Franchisees in Restaurant opened over the years. Other prominent franchise names in the food industry are Haldiram, Subway, Dominos, Macdonald, etc.
- Hotel Franchise in India: The tourism industry has seen a steady growth over the years in India. People spend money on travel and book luxury hotels for the holidays. This has led to an increase in the number of Hotel Franchises across the country. Some common examples are Radisson, Marriott International, etc.
- Gym Franchise in India: Over the years, there has been a dramatic increase in the number of people who regularly exercise. People are becoming increasingly aware of its strengths and their benefits. Various Gym franchises operate throughout India such as Gold's Gym, Chisel, etc. to meet the needs of fitness enthusiasts.
- Franchise Clinics in India: There are many major players in these fields who have started franchises across India. Hospitals like Fortis, Dr. Batra, Lal Path Labs, etc. are some of the examples.
Why would it be Required?
A franchise agreement is a license specifying the franchisor and the franchisee's rights and obligations. The aim of this agreement is to protect the intellectual property of the franchisor and to ensure continuity in how each of its licensees operates under its name. Since the arrangement is codified in a written agreement designed to last for at least 10-20 years, the franchisor must be able to grow the brand and its customer offering in order to remain competitive. The contract also needs to be flexible enough to allow the franchisor to make contractual adjustments that represent decisions in response to the unique needs of franchisees. There are, however, no amendments to the stipulation that franchisees must daily handle their independently-owned businesses by meeting brand expectations on an ongoing basis. The franchise terms and conditions are followed up with the agreement well designed and formulated.
3 Types of Franchise Agreement India
- Single Unit Franchise Agreement - The typical and most popular type of franchising is this. The privileges and responsibilities surrounding the creation of the franchise are challenged by this form of agreement. It also narrates the franchise's operations. Nevertheless, franchisees are liable to invest in their resources and use their management skills to expand their business.
- Multi-Unit Franchise Agreement - The franchisor has the right to give more than one franchised unit to the franchisee. This means this agreement provides the operation and establishment of more than one franchise unit. But the multi-unit franchise requires to have quick financial capability which works as an essential asset in the extension of the business.
- Master Franchise Agreement - The master franchise agreement, the franchisor gives the right to a particular country, region, or continent. Consequently, empowering the master franchisee to give a complete range of products and services to the franchisor. Furthermore, the master franchise agreement also has the power to recruit other franchisees. This means the master franchisee becomes a franchisor to those franchisees who enters the system by its master franchise.
Elements of a Franchise Agreement Format
- Relationship Framework - The Franchise Agreement includes the names of the parties to the agreement, the ownership of intellectual property. The agreement also addresses the obligations of the right holder to manage their business following the standards set by the franchisor.
- Franchise terms and conditions - This section of the law deals with the course of franchisor-franchisee relationships. Initially, the franchisee is asked to pay an initial fee to become part of a formal relationship followed by a continuous fee to retain its position.
- Location and Area - The franchise agreement also covers the location and location given to its franchise. However, the allotted area is different for each agreement. The Franchise Agreement defines two types of locations:
- Exclusive Territory
- Non-exclusive Territory
- Exclusive Territory - Only one franchise is allowed in a special area. A franchisor does not have the right to sell more than one franchise in that particular area. The assigned territory will be unique to that particular franchise.
- Non- Exclusive Location - In a non-exclusive area, a franchisor has the right to sell more than one franchise in that particular field.
- Use of Intellectual Property - Trademarks, patents, and manuals are also part of the agreement, which is given to the franchisor to the right holder. The agreement also stipulates the intended use of trademarks, copyrights, and manuals.
- Advertising - Franchisors account for franchisees to be included in product marketing.
- Insurance - All franchise agreements require the franchisee to obtain insurance to cover their business activities.
- Training - This section of the agreement deals with the training provided by the franchisor which includes conferences, meetings, etc. in which the franchisor will request the franchisee to attend.
- Expiration or termination obligations - Steps the franchisee will take if the relationship ends or is terminated due to breach of the franchise agreement.
- Right to initial refusal - The franchisor reserves the right to purchase business-related assets before the franchisee has granted the third party.
- Commitment - A promise from the right holder that they will reimburse the right holder in the event of any loss or loss due to negligence or negligence. This part of the agreement exists because the franchisor is not responsible for the day-to-day operation of the business, so they should not be held liable.
- Non-Competitive Agreement - Prevents the franchisee from opening any business that can compete with the franchise. There are two parts to it: term and post-term. Timeline refers to the time at which a franchise agreement applies. The post-term component covers the period after the franchise agreement expired or terminated.
- Dispute Resolution - The franchisor methods used to resolve disputes with the franchisee. Common ways of resolving disputes include mediation and resolution.
- Miscellaneous - All other legal matters not described above, including, but not limited to subsequent rights, termination, resale rights, supply resources, regulatory authority, etc.
Benefits of getting franchise contract
- Recognition of Brand: Even though most individuals think of fast-food franchises when they hear the word franchise, almost any organization may be one. A franchise agreement is a legal document that enables anyone to use the trademark, brand name, and logo of an established company, among other items. The appreciation of the brand may be the best reason to buy into a franchise. Marketing costs for a startup can easily devour money, but you have the benefit of being supported by a trusted company with a well-known brand with a franchise.
- Quality Management Operations: People, in large part, shop at franchises because they know what to expect. Being a franchisee means that the quality or accuracy of your goods or services will rarely have to be thought of. Usually, this quality assurance also applies to buildings and fixtures.
- Higher Rates of Progress: While the success rates of franchises and start-ups do not have clear numbers they vary from a high of 95 percent for franchises to a low of 35 percent for independents. The Small Business Administration reports that the success rate for franchise-owned firms is substantially higher than the success rate for many independent companies. That in itself is a good argument for a franchise agreement to be entered into.
- Growth Opportunities: In India, while there are almost a million individual franchises, the number of franchisees is much smaller. That's because many franchisees are operating from different locations. For independent startups, this kind of growth potential is rarely discovered and is another reason many people want to sign up with a franchise.
Procedure of preparing a franchise agreement
- Your request for the preparation of a franchise agreement will be received upon communication, and our representative will email you to forward your request.
- If we need more details from your side, we will call you as and when possible.
- Our in-house lawyers and legal experts will build the franchise agreement draft after we receive all your information and send it to you within 2-4 business days for your viewing.
- If you need any changes made to the sample of the franchise agreement, our attorneys will do the necessary things and send it to you again for your approval.
Documents required for franchise certificate
To get a Franchise Agreement, there are no special documents needed. The franchisee must, however, establish that the franchisor has the right to assign the franchisee and the related benefits to the franchisor. The franchisee must scrutinize all the necessary documentation for this reason. Moreover, relevant documentation relating to the identities of the parties to the agreement must also be scrutinized by the parties.
What is the Difference Between a Franchise Agreement and a franchise license?
- In a franchise agreement, the franchisor gets more assistance than a licensor does.
- The licensor has a say in how intellectual property is used, but not in how (as in a franchisee/franchisor relationship) the licensee runs the company.
- Licensees are not expected, as franchisees are, to implement a step-by-step business plan.
- The duration of a franchise agreement is a little more flexible than a license, since the option to extend begins, usually, at five years. Whereas, franchise licenses will last between 16 and 20 years.
- Licensees can negotiate the terms of the agreement, while, in most cases, the franchisee is unable to do so.
- Businesses may use their strong track record and performance to acquire a license, while a more rigorous selection process is available for a franchise.
Renewal and Continuation of Franchise agreement
A variety of potential definitions can be given to the word "renewal." For the purposes of this paper, renewal means the addition, after expiry, of another term, for a period of time and in the manner stated in the agreement, to the same terms and conditions as the expiring term. We mean by "extension" the right to enter into a new arrangement upon the expiry of the contract's duration or renewal term. The new deal would be on the conditions that new franchisees would then be sold. Some franchise agreements do not allow renewals or extensions, but in most cases one or both are allowed. From the franchisor's point of view, the least ideal solution would be an arrangement that allows the franchisee the right to extend the contract indefinitely from term to term, because as long as the franchisee wants, it would lock the franchisor into one form of agreement. An arrangement that allows any party to terminate at the end of the period is better for the franchisor, but because of the need to take the initial fee into consideration, it is not popular in franchising. More generally, the deal would be on the terms of a new franchise for one year, with maybe one renewal period, with a right of extension if the franchisee wishes so. Variations on this strategy could include providing an extension to new franchisees for one-half of the initial fee then being paid, or for no initial fee at all.
Things to Consider Before Starting into A Franchising Agreement
The franchisor needs to ensure that there is adequate capital for the proposed franchisee to make the necessary investments. To assure that the payments of royalties and fees are made in time, it is also necessary for the franchisee to maintain proper account books. The franchisee wants to make sure that the franchisor has goodwill and that the distribution and sale of the product/service would not have to face problems. Initially, the payment conditions should be explained as to the amount payable at the outset as well as the royalties payable at fixed intervals. Transparency and shared partnership are the secrets to an efficient and profitable franchising agreement. Because franchising is a system where continuous support is needed for performance, this can go a long way. To assess the profitability and prospects of their proposed franchising agreement, appropriate information concerning both parties must be shared in advance.
New Updates on franchise Agreement india
Arvind Fashions, Gap Inc Ends India's franchise business
September 29, 2020: Arvind Lifestyle Brands Ltd, a wholly owned subsidiary of Arvind Fashions Ltd (AFL), and Gap Inc have allowed the franchise business relationship in India to be terminated on a common basis. The company entered into a binding agreement with Gap Inc to end its franchise business relationship in India on September 29. They have also reported the MCA via a governing filing of the same matter.
Airtel Thanks its Franchise Players for Adding to its Extension
18-May-2020: The telecommunications giant Bharti Airtel today published its financial report for its Home Services division. As of March 2020, the company has said it has accomplished a YoY (Year-on-Year) growth of 3 percent. For growing its reach and adding to its success, the business thanked its franchise players.