The compensation clause in the franchise agreement should stipulate that the franchisee reimburses the franchisor for any losses resulting from negligence or misconduct. Franchising is a consistent and lasting replication of a company`s brand promise, and an agreement must describe in detail the many business decisions that go to the creation of a franchise system. It is complex and, in most cases, a liability contract, which means an agreement that cannot change easily. Since a franchise agreement must reflect the uniqueness of each franchise offer and explain the dynamics of the proposed franchise relationship, copying the agreement from another franchise system is probably the biggest mistake a new franchisor can make. When developing a reasonable set of franchise agreements, each element of the franchise must be evaluated. Before lawyers begin to develop the agreements, it is essential for the franchisor to first develop its business plan and decide on all these important issues. For most franchisors, it is important not only that they work with franchise professionals, but also work with experienced and qualified franchise consultants to design their franchise. Each franchise agreement should be signed in writing by both parties. Oddly, there are oral or handshake chords in franchising, although they are rare. And it`s no surprise that they are rare. Think of the legal nightmare that, years later, tries to prove oral statements. A written document highlights rights and obligations. If you grow your business through franchising, a franchise agreement is the key to protecting your brand.
In essence, it explains how your brand can and cannot be used, and what critical elements you have in your business format. As an aspiring franchisee or franchisee, the franchise agreement is the most important document for your franchise investment. If something is promised to you by a franchisor and you rely on that promise, it must be included in the franchise agreement or a change in the franchise agreement. To learn more about buying a franchise and the due diligence steps to evaluate, click here. In general, most franchise agreements are written by the franchisor and will focus heavily on the conditions to which the franchisee must meet. A franchise agreement is also generally non-negotiable. Since a franchise is a highly reproducible business model, the conditions should be more or less the same for each franchisee. Consistency in each of your franchise sites is essential.
This sounds simple in theory, but there are several elements that should be included.