Social Franchise Agreements
Key Points:
A Franchise is only as good as the agreement underpinning it. It is essential that the franchise agreement be drafted in a thorough and robust way. It must cover all of the relevant issues and perhaps, even more importantly, all the possible eventualities.
What Should the Agreement Include?
The number of issues that must be covered is quite exhaustive but some of the key points can be summarised as follows:
1. The Grant: Will be found at the beginning of the agreement and in effect allows the franchisee to operate the business and use the intellectual property of the franchisor in a specific area. From the grant everything else flows.
1. Fees: The fees will likely include an initial set fee as payment for support during the start-up phase and also an ongoing fee which may be fixed or based on a % of revenue/profits. There may also be an annual fee to cover any advertising done by the franchisor on behalf of the franchise at large.
2.The Term: How long will the franchise last? Generally the agreement will be for a 5 or 10 year period. At the end of term the agreement should contain rights of renewal which will allow the franchise to continue unless a major breach of the agreement has occurred.
3. Exclusivity: A franchisee will want to know that they have exclusive rights to the franchise in a particular geographical area. If you set up a fast food franchise the last thing you want to see is another franchisee setting up just down the street.
4. Franchisors obligations: Can be divided up into the initial obligations such as start-up advice and training and the on-going obligations which will include the parting of general know how, advising on on advertising and the continued training of staff as and when required etc.
5. Franchisees obligations: The franchisee will be expected to meet its numerous obligations. They will include adhering to the franchise system, protecting the brand and maintaining standards etc.
6. Intellectual property: The intellectual property of the franchise will include:
-the business name
-the goodwill generated by the franchise
-the copyright of all manuals, websites, promotional materials, software and all other confidential information.
-the trademarks of the business
The franchisor should ensure that the agreement ensures the protection of all of the above.
7. Right to sell: The franchisee will of course want the right to sell on the franchise. From the franchisors perspective, they will want any agreement to give them a veto over any sale if they do not feel that the buyer meets the required standards.
8. Right to Intervene/Terminate: The franchisor may wish to intervene in a more direct fashion if the franchisee is not meeting required operational standards or they may simply wish to terminate the agreement due to major breaches of the agreement.
Useful Resources
For a number of interesting articles on social franchising/replication see the work carried out by UnltdVentures on the Unltd website
This is a great, detailed roundup of the components of the franchise agreement. It's really amazing how some people will jump right into a new business without digging into the fine print.
ReplyDeleteWe go into a discussion of the franchise agreement as well (http://franchisehelp.com/education/article/the-franchise-agreement), which might be a useful source for your readers after they've gone through your detailed overview.