This Franchise Agreement is for a person or organisation who wishes to grant the right to another person or organisation to operate an outlet of the franchise business within a particular territory. This legal document template is suitable for use by a UK based business.
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A franchise business is a business in which the owner (the franchisor) grants a licence to another person or organisation (the franchisee) which entitles the franchisee to trade as their own business under the brand of the franchisor within a particular territory or location, following a proven business model. The franchisee also receives a package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.
In the UK there are no specific legislation governing franchising; franchises are subject to the same laws that govern other businesses and franchise agreements are made under regular contract law and don't need to conform to any additional legislation or guidelines.
A franchise agreement is a legally binding document setting out the rights and obligations of the franchisor and the franchisee. It is an is essential part of the franchise business. A clear, written contract lets both parties know what is expected of them and can help prevent misunderstandings and disputes.
There are a number of key issues that a franchise agreement must cover, including:
There are many advantages to owning a franchise business including:
Franchising is a good way for individuals to own and operate their own business since it allows entrepreneurs to be in business for themselves, but not by themselves. With a franchise business there is already a proven business formula in place: the products and services and business operations have already been set up and proven in the marketplace. Since the business model has already proven to be successful, there is a better chance of a franchise branch succeeding compared to starting a brand new business.
Buying a franchise is a significant investment so it is important that you understand exactly how franchising works, what fees are involved, and what is expected of you from the franchisor. Seeking independent advice before buying into a franchise business is prudent.
To invest in a franchise, the franchisee must pay an initial fee for the rights to the business. After that, the franchisee will usually pay the franchise owner an ongoing fee, either on a monthly or quarterly basis. The fees are in return for the management services provided by the franchisor, the products and materials ordered from the franchisor and marketing fees. Within the agreement the fees may be set out individually and possibly with different payment periods e.g. the marketing fee could be an annual fee with the others being monthly.
In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, promotional activities and with a specialist range of management services.
Generally, the business model for each franchise is the same and the franchisee must follow certain rules. Each franchise is owned and operated by the franchisee but the franchisor controls the way in which products and services are marketed and sold, and the quality and standards of the business. For example, the franchiser will require the franchisee to use the uniforms, business methods, and signs or logos of the business. The franchisee will also usually have to use the same or similar pricing. The franchisee is buying not just the right to sell the franchiser's product, but also the right to use the successful and tested business process and must apply the model as set out by the franchisor.
The Franchisee Manual is an integral part of establishing a franchise. It is the operations manual, the 'working bible', for the franchisee and provides the franchisee with detailed information on the working methods and practices of the franchise. The details set out in the manual create a uniform framework to ensure consistency throughout the franchise network as well as a benchmark for assessing standards.
Depending on how well established the franchise network is, the franchisee manual may be a relatively short document or hundreds of pages long (the McDonald's operating manual is reputedly over 600 pages long). Whatever the size or age of the franchise network, the franchisee manual should be regularly reviewed and updated by the franchisor.
The following information should be included in the Franchisee Manual:
The Manual can be in hard copy or electronic format and should be updated regularly.
You can view an online sample Franchise Agreement by following this link: View Sample
This franchise agreement template is suitable for use by a UK (England, Scotland and Wales) based business. Clauses included cover:
In addition to the Franchise Agreement, the Franchisor should also provide each Franchisee with a Franchisee Manual. This Franchise Agreement template contains guidance notes on what should be included in the Franchisee Manual.
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