In today’s world, there are plenty of ways you can make a living, and one that has been tried and tested is franchise ownership. It’s estimated that there are more than 750,000 franchise organizations in the US. Before you can take ownership of a franchise, however, you need to sign a franchise contract. It will detail the terms of business operation and any rules that you need to adhere to.
A franchise contract can be quite complicated, but in this guide, we’re going to cover everything you need to know about them. Keep reading for more.
What Is a Franchise Contract?
A franchise contract is a legally binding agreement that gives a franchisee the right to operate a business owned by the franchiser. In return, the franchisee makes a one-time payment or periodical payments based on terms set out in the franchise agreement.
A franchise will outline the rights and obligations of both parties. The contract helps to protect the franchisor’s IP (intellectual property) and ensures that the franchise operates in a way that aligns with the franchisor’s trademark.
Most franchise contracts include franchise disclosure documents (FDDs) that are set by the Federal Trade Commission (FTC) Franchise Rule. There are plenty of businesses that use franchise agreements, such as retailers, restaurants, convenience stores, health clubs, and more.
What’s in a Franchise Contract?
Franchise contracts can vary quite a bit based on the business involved. There are some elements, however, that are consistent, so you can expect to see these in any franchise contract you deal with.
Franchise Territory and Boundaries
A company should spread its franchises out strategically. Having two very close to each other may not be beneficial.
As such, each franchise location is chosen specifically to cover a certain area. The franchiser will decide this to ensure there isn’t too much competition between the two, as this will yield better results.
