A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.
Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule. The Franchise Rule requires a franchisee be supplied a Franchise Disclosure Document (FDD) (originally called Uniform Franchise Offering Circular (UFOC)) prior to signing a franchise agreement, a minimum of fourteen days before signing a franchise agreement.
Once the Federal ten-day waiting period has passed, the Franchise Agreement becomes a State level jurisdiction document. Each state has unique laws regarding franchise agreements.
A franchise agreement contents can vary significantly in content depending upon the franchise system, the state jurisdiction of the franchisor, franchisee, and arbitrator.
It overall provides the investor with a product, a branded name and recognition, and a support system.
A typical franchise agreement contains
Franchise Disclosure Document (FDD) Disclosures required by state laws Parties defined in the agreement Recitals, such as Ownership of System, and Objectives of Parties Definitions, such as Agreement, Territory Area, Area Licensee, Authorized deductions, Gross Receipts, License Network, The System Manual, Trademarks, Start Date, Trade name, Termination, Transfer of license. Licensed Rights, such as Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard Franchisors Services, such as Administration, Collections and Billing, Consultation, Marketing, Manual, Training and Vendor Negotiation Franchisee Payments, such as Initial Franchise Fee, Training Fees, Marketing Fund, Royalties, Renewal fee, and Transfer fee Franchisee Obligations, such as Use of Trademarks, Financial Information, Insurance, Financial and Legal responsibility Relationship of Parties, such as Confidentiality, Indemnification, Non-Compete clauses Transfer of License, such as Consent of franchisor, Termination of license, Termination by licensee Other provisions Governing law Amendments Waivers Arbitration Severability