Drafting a Franchise Agreement

Saptaparni Raha
Sep 23, 2022
2 min read

Written by Saptaparni Raha, Lawyer

Ankush wants to open a Domino's franchise. He is confused about how he can start his franchise. He went to his friend Gourav, who is the manager of Jubilant Food Works Limited, which manages Domino's franchise business in India.

Ankush is curious to know how it works and which legal documents are required for it.

He came to Shweta Consultancy Services to understand the franchise agreement, which is the first and foremost document he needed.

Introduction:

A franchise agreement creates a legal relationship between the franchisor and the franchisee. The franchisor grants the company name to the franchisee by signing this agreement.

Benefits of having a Franchise Agreement:

It defines the relationship between franchisor and franchisee and its rights, benefits, restrictions, etc.
Franchisors can have better control over the business operation.
This agreement helps in adopting the business and branding.

Important clauses:

The first clause of the agreement acknowledges the goals and expectations from this agreement.
In the next clause, the franchisor grants a limited, non-exclusive, non-transferable license to use its logos, service marks, and method of operating the business.
The agreement must mention the duration till which the agreement will persist.
In the next clause, it must be mentioned how much fees a franchisee must pay to the franchisor.
In the next clause, the operation of the franchisee company must be mentioned. It must include the purchasing goods, services, requirements, account administration, etc.
The franchisor then grants a temporary license regarding the specifications of the product, and the franchisee must keep them private.
In the next clause, the franchisor ensures training support to the franchisee to maintain uniformity.
In the Advertisement Clause, the franchisor ensures the assistance of marketing and advertising to the franchisee.
There must be a franchise settlement breach to be treated as a breach.
If the relationship is terminated due to a breach, the franchisee should take steps to de-identify the business.
The franchisee is not allowed to set off any royalties owned by the franchisor under the Royalties Clause.
Under the Quality Assurance Clause, the franchisee commits to maintain the quality according to the standards and specifications included in the quality control of the agreement.
Under the Indemnification Clause, the franchisee shall reimburse the franchisor for any losses incurred due to carelessness.
Under the Geographical Restrictions Clause, once the franchise settlement ends or it is terminated due to breach, the former franchisee is covered by the post-term covenant.
Under the Insurance Clause, it ensures that franchisees will get insurance to support their business activities.
A non-competition covenant prohibits a franchisee from starting a business that competes with the franchised business.

Conclusion:

The franchise agreement helps in protecting the quality of the franchisor's business and establishes a legal identity of the parties signing this agreement.

References:

Cleartax. (2021). Franchise Agreement. retrieved from Franchise Agreement - Fundamentals, Benefits & Regulatory Framework (cleartax.in)
Ayush Tiwari. (2022). Franchise Agreement. retrieved from Franchise Agreement - iPleaders