Franchise agreement template

Content

Franchising is a strategic way to grow a brand and its presence.

Central to this growth is the franchise agreement, a document that not only formalizes the relationship between franchisor and franchisee but also serves as a blueprint for the operational and financial aspects of the franchise.

What is a franchise?

A franchise is a type of business relationship where a business owner (the franchisor) grants to an individual or company (the franchisee) the rights to operate a business using the franchisor's brand, trademark, and business model.

In return for these rights, the franchisee usually pays the franchisor an initial start-up fee and ongoing licensing fees or royalties.

Understanding a franchise agreement

A franchise agreement is a legally binding contract that establishes a franchisor's relationship with a franchisee. It outlines the rights granted to the franchisee, including the use of trademarks, business models, and systems, in exchange for financial compensation to the franchisor.

This agreement is the foundation upon which the expectations and responsibilities of both parties are built.

The objective of a franchise agreement

The agreement's primary purpose is to safeguard the franchisor's intellectual property and ensure the franchisee operates within the established brand parameters.

It delineates the scope of support from the franchisor, the operational standards to be maintained, and the financial commitments required from the franchisee. Ultimately, it's designed to protect the brand's integrity while fostering a profitable and sustainable partnership.

When to use a franchise agreement template

Consider utilizing a franchise agreement template in the following scenarios:

Launching a franchise system. When you decide to franchise your business, you'll need an agreement for each franchisee, detailing the operation and the relationship.
Onboarding a new franchisee. As new franchisees join your network, a Franchise Agreement sets clear expectations and formalizes their role within the system.
Renewing a franchise contract. When an existing franchise agreement comes to an end, a new contract will be needed if both parties agree to continue the relationship.
Expanding to new locations. For each new location, a tailored Franchise Agreement will be necessary to address location-specific terms.

Who manages franchise agreements?

Typically, the franchisor's legal team is responsible for managing Franchise Agreements. However, franchisees must also understand and negotiate terms, often with the assistance of their legal advisors.

What should a franchise agreement template Include?

A comprehensive franchise agreement template should cover:

Parties involved. Identifies the franchisor and franchisee, including legal names, addresses, and contact information.
Grant of franchise. Details the specific rights being granted to the franchisee, including geographical territories and any exclusivity clauses.
Financial provisions. Outlines initial fees, ongoing royalties, advertising contributions, and other financial obligations of the franchisee.
Brand and operational guidelines. Specifies the standards and procedures the franchisee must follow to ensure consistency across the franchise network.
Training and support. Describes the training and ongoing support the franchisor will provide to the franchisee.
Marketing and advertising. Details the obligations of both parties regarding marketing efforts and the use of the brand's trademarks and logos.
Duration, Renewal, and termination. Specifies the term of the agreement, conditions for renewal, and grounds for termination.
Dispute resolution. Outlines the methods for resolving any disagreements between the franchisor and franchisee.
Confidentiality. Ensures both parties maintain the confidentiality of proprietary information.
Insurance and liability. Details the insurance requirements and limits of liability for the franchisee.
Compliance with laws. Affirms that the franchisee will operate the franchise in accordance with all applicable laws and regulations.

Traditional workflow for managing franchise agreements

Draft

The franchisor's legal team drafts the agreement using a template as a starting point, customizing it for the specific franchisee.

Review

The draft undergoes review by various stakeholders, including management and legal advisors, to ensure it aligns with the brand's standards and legal requirements.

Negotiate

The franchisee, often with legal counsel, reviews and negotiates terms, leading to a final agreement acceptable to both parties.

Sign

Once agreed upon, the contract is signed, often with electronic signatures, making it a legally binding document.

Manage

The franchisor oversees the agreement's execution, ensuring the franchisee complies with the terms throughout the contract's duration.

Renewal or termination

At the end of the term, the contract is either renewed or terminated, with obligations fulfilled and any final settlements addressed.

Automating franchise agreements

Contract management software like Juro can significantly streamline the creation and management of franchise agreements. Automation features include:

Automated templates. Pre-designed templates can be quickly customized for new franchisees, reducing manual work.
Real-time negotiation. Stakeholders can collaborate and negotiate directly within the software, enhancing efficiency.
Electronic signing. E-signature capabilities facilitate faster and more convenient signing processes.
Secure storage. Signed agreements are securely stored and easily accessible for future reference.
Visibility and search. Advanced search functions allow for quick retrieval of specific clauses or terms across multiple agreements.

Franchise agreements formalize the relationship between a franchisor and a franchisee. By clearly defining the terms and expectations, it ensures the integrity of the brand and the success of the individual franchise.

Utilizing a template and embracing automation can save time, reduce errors, and maintain consistency across all of your contracts.

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Frequently Asked Questions

What is a franchise agreement?

A franchise agreement is the contract under which a franchisor lets a franchisee run a business using its brand and operating system. It records what the franchisee can use and where, and what they pay in return, usually an upfront fee plus ongoing royalties.

Do I need a franchise agreement for a single location?

Usually, yes. Even one franchised outlet trades under your brand, so you need a written agreement that controls how the franchisee uses it and lets you end the relationship if standards slip. An informal arrangement where someone pays you to trade under your brand with your support can still count as a franchise under US law, with the disclosure duties that come with it.

What does a franchisor have to give a franchisee before they sign?

In the US, the FTC Franchise Rule normally requires the franchisor to give a prospective franchisee a Franchise Disclosure Document at least 14 days before they sign or pay anything. The document sets out the fees and the franchisor's financial position, among many other disclosures. Some states also require franchisors to register before they sell, so check the rules in each state where you plan to operate.

How is a franchise agreement different from a licensing agreement?

A licensing agreement gives someone the right to use intellectual property, such as a brand or a piece of software, and usually leaves them free to run their business their own way. A franchise agreement goes further, because the franchisee also adopts the franchisor's operating system and has to follow its standards and training.

What territory protection should a franchisee ask for?

Ask for a clearly defined territory, marked on a map or by zip codes, and a promise that the franchisor won't open or license another outlet inside it. Check whether the protection covers online and delivery sales, because that's where territory disputes often arise. Franchisors often tie exclusivity to sales targets, so make sure any targets are realistic before you accept them.

What happens when a franchise agreement ends?

The agreement should say whether the franchisee has a right to renew and on what terms, since some franchisors require a new agreement at their current fees. At the end, franchisees normally have to stop using the brand and return confidential material, and many agreements add a non-compete for a set period. How far a post-term non-compete can be enforced varies by state, so check it before you rely on it.

Can I use this template as it is?

It's a sound starting point, but franchise terms depend heavily on your system, so tailor the fees and territory to each franchisee and check the disclosure rules where you operate. For specific legal advice on your contract templates, consult an attorney.

What's the easiest way to manage franchise agreements?

Build your franchise agreement template in Juro once and generate each franchisee's contract from it, with your team adding the location and fee details that change each time. When you update your royalty structure or territory rules, you change that one template and every new agreement follows. Signed agreements sit in one place you can search, so you can see renewal dates across your whole network.

Can Juro create a template like this for me?

Yes. Operator, the AI drafting feature in Juro, writes a new franchise agreement template based on what it learns from your existing contracts, from your drafting style to the positions you usually take on terms like territory and termination. Your legal team approves the first draft before it goes to any franchisee, so the template reflects your risk appetite.