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Specific Franchise Agreement Definition

October 8th, 2021

A franchise agreement is the legal contract that establishes a franchise relationship between a franchisor and a franchisee. Under a franchise agreement, the franchisee obtains the legal right to create a franchise point of sale and a franchise in which the franchisee obtains, among other things, the license and right to use the franchisee`s trademarks, trade presentations, business systems, operating instructions and sources of supply when offering and selling the products and / or services designated by the franchisee. The franchise agreement must be legally disclosed as evidence of a franchisee`s franchise disclosure document that must be disclosed to potential franchisees prior to the offer or sale of franchises. “Franchise agreements are the Bible of the franchise industry — they are the most important agreements to settle the relationship between franchisees and franchisees,” said Evan Goldman, a partner at New Jersey-based law firm A.Y. Strauss and chair of the firm`s franchise and hospitality practice group. [Read related article: Ultimate Guide to Business Franchising] “A franchisor can qualify as a membership or a license, but if all three conditions are met, you can enter into a franchise agreement,” Goldman said, noting that some franchise agreements might attempt to disguise themselves as licensing agreements. “A pure license agreement gives you permission to use the name and logo, and that`s it – you won`t get the marketing help or operating method you`d get from a franchise.” The indemnification clause of the franchise agreement should stipulate that the franchisee shall reimburse the franchisee for all losses resulting from negligence or fault. “If you`re not the first or second person who ever crosses a particular business, the fees are pretty much set in stone,” Goldman said. A franchise agreement is a legal and binding agreement between a franchisor and a franchisee.

In the United States, franchise agreements are taxed at the state level. Sub-franchise agreements must reflect the main terms of the framework franchise agreement, or even the form of the sub-franchise agreement can be appended to the main franchise agreement as proof. In addition, the franchisor may reserve the right to authorize sub-franchises and the place of development of each sub-franchise and may dictate the economic relationship between the master franchisee and its sub-franchisees, including royalties and other fees. Franchise agreements may contain all the provisions summoned by the parties as long as they do not violate the laws in force, public order and morality. Apart from these three main provisions, Goldman said, the rest of the deal may vary, among other things, depending on the type and size of the franchise.

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