A franchise agreement is the legally binding contract between the owner of a company (the franchisor) and an individual or company (the franchisee) who is given permission to run a particular outlet of the business. The franchisor owns the company, trademarks, products and any intellectual property associated with the business. The franchisee will usually pay a fee for the right to operate the business in a specific location.
Application for business people
Opening a franchise can be a good opportunity for business people as it combines the advantages of running your own business with the security of an established brand and products that have been tested in the market.
The franchisor will typically want to provide customers with a level of consistency throughout all business outlets. To achieve this, the franchisor will usually assume responsibility for training, operational support, equipment, branding and advertising. The franchisors will also generally provide an operating manual to franchisees which sets out how they want the outlet to be run.
Before signing a franchise agreement, it is very important for potential franchisees to learn as much as they can about the business and the market in which it operates. Conducting this due diligence, along with carefully reviewing the operating manual and the terms of the franchise agreement, will help to determine whether the franchise is a good option for you.
6 key things to consider
Becoming a franchisee is a big commitment which can be risky. Some of the key factors to consider before signing a franchise agreement include:
- What are the rights and responsibilities of each party?
- What are the costs to the franchisee in terms of up-front capital and annual fees?
- Are you familiar with the ACCC Franchise Code of Conduct and does the franchise agreement abide by this code?
- How much control, if any, will the franchisee have over the strategic business plan and future of the franchise?
- What is the term of the agreement and is it able to be renewed?
- Are there any penalties for early termination of the agreement? Can the franchise agreement be transferred to another party?
Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers
The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.
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