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FRANCHISE AGREEMENT - BASIC

A well-drafted Franchise Agreement will:

  • Comply with all Federal and State laws and regulations regarding the style and format of such an agreement for distribution to prospective buyers.
  • Identify and describe the franchise fee and other payment terms.
  • Identify and describe what proprietary marks and systems will be licensed by the franchisor.
  • Describe fully the level and quality of the training and assistance the franchisor will provide.
  • Provide for the confidentiality and non-disclosure of any and all business information contained in training manuals or otherwise revealed to the franchisee.
  • Describe the level and quality of work required from the franchisee in order to maintain the franchise and provide thresholds for which the franchisee will have to pass in order to ensure complete cooperation from the franchisor.
  • Describe what advertising will be required of both parties.

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Provision Information & Benefits:
The following information and benefits is what distinguishes us from other online providers.

What is a Franchise ?

A franchise is merely a method of distributing goods and services by licensing a business idea or concept to another. The "franchisor" is the legal owner of the franchised business' concepts and ideas, including names and logos. The "franchisee" is the individual or entity that purchases the right to use these concepts and ideas from the Franchisor. Generally, a franchise agreement grants to the franchisee a limited license and right to use and operate a recognizable outlet within a defined territory by utilizing a pre-existing business system and proprietary marks. The franchise agreement allows the franchisor to carefully control the obligations and responsibilities of the franchisee.

Benefits
Studies reveal that franchised businesses experience lower default rates than independent businesses and generally have a somewhat easier time securing financing because the Franchisor typically has an established trademark and goodwill, as well as marketplace experience. Although franchises usually require up-front fees and are heavily regulated by Federal and state agencies because of their inherent risks, a franchisee operating under one trademark can achieve levels of brand awareness, market penetration and purchasing power that business people operating individually could not ordinarily achieve.

FTC Regulations and State Law
The Federal Trade Commission requires certain disclosures to prospective franchisees. The FTC has adopted an amended Franchise Rule that requires a Franchise Disclosure Document at least 14 calendar days before a prospective franchise sign a a binding agreement or makes payments to a franchisor.

Furthermore, there are franchise registration and disclosure laws in a number of states that require a filing of a franchisor's Franchise Disclosure Document with a state agency. In most of those states, it is unlawful to offer or sell a franchise until the agency has registered the franchisor's Franchise Disclosure Document after reviewing the filing.

Definitions
"Products" or "Merchandise" should be specifically defined and all products and/or services being distributed should be listed. The franchisor wants flexibility as to adding and discontinuing products while the franchisee wants stability and consistency. "Territory" should also be defined as well as any future expansion.

Engagement
Franchisor names franchisee for the purpose of operating a single franchise in the Territory.

Franchise Fee
This is the initial fee charged by the Franchisor to initiate a franchisor/franchisee relationship. Continuing fees are usually required.

Proprietary Marks
Franchisor grants to Franchisee a license, to use the Franchisor's trademarks, trade names and service marks in connection with operating the franchise. Franchisor will probably want to strictly limit Franchisee's right to use its marks. The Franchisee should be prohibited from changing or diluting the composition of the Products as furnished to the Franchisee by Franchisor unless expressly authorized by Franchisor.

Training And Assistance
Franchisor promises to offer guidance to the franchisee pursuant to manuals and/or courses and/or on-going consultation services. The greater the assistance provided, the greater the cost to the franchisor, but this is usually better for the franchisee.

Advertising
Franchisor wants to control the content and nature of any advertising conducted by the Franchisee. The franchisor may provide specific advertising materials and/or require the franchisee to receive franchisor approval and comply with strict advertising guidelines. Franchisor also wants to control the frequency of advertising and will require, based on costs in a given market, specific advertising spending budgets for each franchisee.

Confidential Operating Manuals
As a part of training the franchisee, the franchisor provides a manual detailing how the franchise will be operated. Since this proprietary information is inherently valuable, the franchisee promises to keep it private and confidential. Copying is strictly prohibited and all manuals should be immediately returned if the relationship is terminated.

Confidential Information
In addition to the operating manual, the franchisee will be exposed to various proprietary information related to the operation of the franchise that the franchisor will want to remain confidential. As such, the franchisee expressly warrants that they will not divulge any information related to the franchise or franchisor's business.

Maintenance
In an effort to promote and reinforce the strength of the franchise's proprietary marks, many franchisors require the use of special uniforms, equipment and vehicles. Since the appearance of these items is an important function of the franchise, the franchisee must promise to keep them all in good appearance and working condition.

Accounting and Records
The most important aspect of any business is profitability. This is even more important with a franchise because the entire agreement is usually predicated on achieving sales numbers derived from previous experiences. The only way to ensure the franchise is meeting these thresholds is for the franchisor to authenticate the accounting and records from each franchise. In addition, because of the importance of accounting and records, the franchisor will often implement a special accounting and record-keeping system to ensure consistency and accuracy.

Standards of Quality
As stated, the success of a franchise depends on the strength of reputation and marks associated with the franchise. Therefore, the franchisor has an increased incentive to demand that franchisees comply with strict standards of quality and use. The franchisee should be prohibited from changing or diluting the composition of the marks or products unless authorized by the franchisor. In addition, the franchisor will want to specify in what manner and at what cost they will distribute/supply identifiable products to the franchisee.

Modification of System
The Franchisor must retain the authority to make changes to the system in order to update protocols and ensure that operating standards are keeping up with industry standards. In addition, the franchisor may want to gradually update or even change its image and marks over time.

Royalty & Percentage Fees
The benefit of using an historically successful branded system does not come without a price. Usually this benefit is paid for over the life of the franchise through royalties and continuing services percentage fees. These fees are generally adaptable, but are usually derived from gross sales.

Warranties and Representations of Franchisor
Favors Franchisee. Franchisee wants express representations from Franchisor that they will abide by the terms of the agreement according to certain expectations. Franchisor should be bound by a provision restricting all attempts to circumvent or bypass the activities of Franchisee.

Warranties and Representations of Franchisee
Favors Franchisor. Franchisor wants express representations from Franchisee that they will abide by the terms of the agreement according to certain expectations. Franchisor will want control over how its products are marketed to customers. Franchisor will also want to control how the Franchisee makes use of promotional materials that are supplied by Franchisor from time to time in promoting the Franchise.

Rights of First Refusal
Favors Franchisee. If the Franchisor at any time hereafter decides to sell franchises in additional territories outside of the Territory, then the existing Franchisee should be given the first opportunity to accept the right to operate a franchise in said territories.

Indemnification
Each party indemnifies and holds harmless the other party, its officers, and directors against all claims, obligations or liabilities including court costs and attorneys' fees, arising out of either party's tortuous or unauthorized acts, misrepresentations, omissions, failure to perform his/her obligations hereunder, or any acts not expressly authorized in writing, related to or beyond the scope of this Agreement.

Independent Contractor
Favors Franchisor. Important to distinguish this relationship from that of an employee to avoid any tax liability in the future. The onus of responsibility falls onto the franchisee for payment of social security or federal or state income taxes. franchisee acknowledges that it is his/her legal responsibility to pay and withhold all applicable federal and state income taxes (including estimated taxes), social security, Medicare and all applicable federal and state self-employment taxes.

Severability
In the event any part, portion or provision or paragraph of this Agreement is declared void or invalid, the remaining portions of this Agreement are not affected and remain in full force and effect.

Mediation and Arbitration
Mediation and Arbitration should always specify a location in a convenient jurisdiction for the Franchisor (preferably, in the same county where they run their business). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publicly available).

Governing Law
Always stipulate that the contract will be governed under the law and jurisdiction where business is conducted. Always make sure that venue and jurisdiction are convenient.
 
No Modification or Waiver
No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision.

Entire Agreement
This agreement constitutes the entire agreement of the parties and may be modified only in a writing executed by both parties.

Notices
Notices should always list the current and best addresses where each party may contact the other for whatever reason.

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(312) 443-1500
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Toll Free: (888) 336-8400
(973) 473-2000
Fax: (973) 778-2900
Gracielle R. Cabungcal, Esq.
Interim Managing Attorney
130 North Central Avenue, Suite 303
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Fax: (602) 603-1721
John Burton, Esq.
Managing Attorney
AtlantaGeneral Counsel Club®International Clients & Requests
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Phone:  (404) 329-4800
Fax: (800) 520-7800
Tamara L. Klopenstein, Esq.
Managing Attorney
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