Basically, the franchisor will typically have the following obligations under a franchise agreement:
- Consulting on finding premises;
- Advising on changing, upgrading and using items in the business system;
- Generally advising on how to set up and operate the franchise system;
- Suppling equipments, products and accessories;
- Providing operation manual;
- Conducing initial training programs for franchisees;
- Supporting in PR and marketing campaign;
What are the responsibilities of a franchisee and a franchisor?
Both parties have important responsibilities they must handle to keep the business running properly. While the exact responsibilities of franchisees and franchisors may vary slightly by business, some key obligations are commonly found in most franchise agreements:
What are the fees a franchisee must pay?
Franchisees must pay any fees related to the use of the franchise system and brand. Fees are not just limited to upfront costs. All franchisees have an obligation to follow the franchiser's system, rules and standards, as well as taking care of individual location duties, such as local accounting and sales force hiring.
What is a a franchise agreement?
A franchise agreement allows you, the franchisee, to operate your business under the business name, branding, business systems and intellectual property of the franchisor. Understandably, therefore, the franchisor is going to have a very vested interest in you doing well; their business name is at stake.
How does the legal structure of a franchise affect profits?
Selecting the best legal structure is a major decision for new franchisees. Legal obligations and tax implications are only part of the challenge because the legal structure of a franchise can impact its operations and eventually, profits.
What are the obligations of a franchise?
Franchisee ResponsibilitiesPaying the franchise fee and paying royalties to the franchise to help run the larger business.Finding, leasing and building out a location for the franchise. ... Hiring and training employees. ... Running the business according to the standard expected of the franchisor.
What are the 3 conditions of a franchise agreement?
Franchise agreements vary between different franchises, but these seven areas should be addressed in every franchise agreement.Use of Trademarks.Location of the Franchise.Term of the Franchise.Franchisee's Fees and Other Payments.Obligations and Duties of the Franchisor.Restriction on Goods and Services Offered.More items...
What are the obligations specifically imposed on the franchisee by local law?
There are no obligations specifically imposed on the franchisee by local law. The agreement is the law between the parties. The parties to a franchise agreement are free to include the terms that they deem proper, provided that these terms are not contrary to law, morals, good customs, public order or public policy.
What are franchisees usually liable for?
Franchises offer limited liability for the franchisee from any legal suits brought by customers or employees. This means that the franchise owner's personal assets cannot be affected by the outstanding debts of the franchise.
What is the obligation of franchisor to franchisee?
As a "franchisor" your primary responsibility will be to support the operations of your franchisees and to continuously develop and monitor the business systems, products and/or services that have made your business a success. The number responsibility you will have is to financially support the franchise.
What are the two main franchising legal documents?
There are two legally required documents you should become very familiar with before franchising your business: the Franchise Disclosure Document, and the Franchise Agreement.
What are the rights of a franchisee?
The franchisee holds the right to the franchisor's loyalty, good faith and fair dealing, and due care in the performance of the franchisor's duties. The franchisee is also entitled to impose reasonable restraints upon the franchisor's ability to require changes within the franchise system.
What is the legal definition of a franchise?
Franchise is commonly used to refer to a relationship wherein a business organization, called a franchiser, in exchange for a fee and with the franchisor's guidance, allows another business, called the franchisee, to operate under the franchiser's trade name and offer the franchiser's products or services.
What should a franchise agreement contain?
A franchise agreement will usually contain the franchisee's obligations relating to performance criteria, payment of fees (royalties, marketing fees, training fees, transfer fees, termination fees, utility levies etc.), marketing, reporting, training, supply of products and services, territory etc.
Are franchise owners liable?
Most courts have held that franchisors may be liable for the acts of their franchisees and franchisee employees. Courts are reluctant to hold franchisors liable for acts of their franchisees, because franchisors are often removed from the situation. But that is not always the case.
Can you walk away from a franchise?
There are many reasons why a franchisor or franchisee may not want to renew a franchise agreement. Thankfully for the franchisee, there is nothing to stop them from closing up and walking away when the agreement expires.
Who is responsible for business debt in a franchise?
Outstanding debts will belong to the nominated franchise outlet. This means each outlet will have its own address details and information directed at the debtor from where the location they purchased goods or services to avoid confusion.
What are the important features of a franchise agreement?
Key points in a franchise agreement The duration of the franchise, and any renewal rights. The fee structure. How the business is to be marketed. The operating requirements of the business (linking directly with the Operations Manual)
What are the components of franchise agreement?
Elements of Franchise AgreementFranchisor & Franchisee Details. ... Franchise Fee & Consideration. ... Business Operations. ... Advertising and Brand Promotion. ... Training, Supervision, and Support. ... Use of Trademark & Intellectual Property. ... Term of Agreement. ... Transfer or Assignment of FranchiseDescription.More items...
What are the contents of a franchise agreement?
The franchise agreement should outline the rights and obligations of both the franchisor and the franchisee. The main purpose of this contract is to protect the intellectual property of the franchisor.
What are the parts of franchise agreement?
The franchisor's business background, ethics and any past bankruptcies. Fees and financial arrangements. Any restrictions on how the franchisee can source products and services, or what they are allowed to sell. A list of current and past franchisees.
What is franchise management?
Management of franchise territories to ensure all franchisees have a large enough territory to sustain them without infringing on another franchisee’s territory. Ongoing training for franchisees and their employees and/or training materials for franchisee employees. Evaluation of franchisees on a regular basis.
Why is franchisee success important?
As a member of a larger team, when a franchisee runs a successful business, it helps the entire brand, which in turn helps all the other franchisees connected to that brand. Someone who has a good experience at a franchise location will remember that when they’re in another city and see the brand’s logo on another franchisee’s location. Effectively, one franchisee’s superb service may gain customers for other franchisees in this way and vice versa.
Why does franchising grow?
As the franchise grows, the franchisor’s revenue grows because it brings in more royalties. Therefore, it’s in the franchisor’s best interest to support its franchisees so the entire business is healthy and can grow for the benefit of everyone involved. The franchisor is responsible for the following:
Why does franchising increase the value of a company?
Like any company, a franchisor wants to increase the value of its business and it does this using the franchise model of opening as many successful locations as possible, thus extending the reach of the business and increasing the value of the brand. As the franchise grows, the franchisor’s revenue grows because it brings in more royalties.
What is franchising responsible for?
The franchisor is responsible for the following: National marketing and advertising for the entire brand. Research and development of new products and services and managing products and services for the brand as a whole.
What is vendor recommendation?
Recommendations of vendors to purchase from, often with deals in place for the entire company.
Who is responsible for paying the franchise fee and royalties to the franchise?
Effectively, one franchisee’s superb service may gain customers for other franchisees in this way and vice versa. As a franchisee, a business owner is responsible for the following: Paying the franchise fee and paying royalties to the franchise to help run the larger business.
The pros & cons of each legal structure
These entities are not the best legal structure for franchisees. According to Oblivious Investor, while they offer benefits for small businesses for their tax structure, they do not offer protection from individual liability.
Bottom line
By now, you have realized that selecting the best legal structure for your franchise is a major decision, which requires consultation from an experienced business law attorney.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, you can get in touch with one of our attorneys at 201-806-3364.
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The Franchise Background
Your Ongoing Obligations
- Broadly, you have the following obligations: 1. To act in good faith 2. To comply with the franchise business model as per the contract documentation 3. To meet your financial obligations 4. To run your business lawfully 5. To follow the dispute resolution process where necessary Let’s look at those in more detail.
Acting in Good Faith
- As mentioned, trust and goodwill are very important components of the franchise relationship. Both you and the franchisor are investing in this commercial venture; you in time, effort and finances, and the franchisor in terms of both the financial investment in the support and systems and in the risk to the reputation of the franchise business as a whole. It is therefore a statutory o…
Compliance with The Business Model
- The franchisor has set up the business a certain way for a reason, most likely because research and experience has proven or suggested that this set-up will provide the greatest chance of success. It is highly likely that time and money has been spent on the business set-up, for example on legal fees, accountants, and infrastructure. It is possible that you have ideas of your …
Meeting Your Financial Obligations
- The chances are that the reason a franchise model appealed to you is the support provided by an existing umbrella business and it’s this you ‘bought’ into. You pay for the benefits associated with the existing set-up: the processes and procedures, the training, the logo, the name and any whole-franchise marketing, and often the infrastructure. Hence, the fees might include: 1. The upfront …
Running Your Business Lawfully
- Each franchise is different and, depending on the goods or services they trade in, may be subjected to different laws that you must be aware of and comply with. Some examples include: 1. If you employ staff to work in your business, you must comply with the Fair Work Act 2009 (Cth). This sets out your obligations in relation to salaries, hours, leave and other entitlements. 2…
Following The Dispute Resolution Process
- If you enter into your franchise with the right intentions and act in good faith, comply with your contractual and financial obligations and run your business lawfully, you will have laid solid foundations for a great franchise relationship and a successful business that will be a credit to both you and the franchisor. But sometimes things just don’t go as easily as that. There are man…
Franchising Resources
- Laws around franchising can be quite dense, and it is an area of law that requires expert legal help. We have a number of resources to guide you in various stages of the franchising process, such as: 1. Selling A Franchise 2. What To Do At The End Of A Franchise 3. Legal Documents You Need For Franchising 4. Franchise Agreements 5. What Fees The Franchisee Has To Pay 6. Ter…
Need Help?
- If you’re embarking on an exciting new venture running a franchise business, then you’ll want to make sure you are fully aware of your ongoing obligations. It may seem a bit daunting but we’re here to help. Reach out to our team for a free, no-obligations chat at [email protected] 1800 730 61.