Franchise Agreement


A franchise agreement is a legally binding contract between parties known as franchisors and franchisees. A business where a parent company known as a franchisor, provides its model of business and brand name to a third party is known as a franchisee. A franchise is owned and operated by an individual who is franchisee but branded and supervised by a parent company.

A franchise business is a great opportunity for self-employment. One should be careful while choosing the franchisor and nature of the product offered by such a franchisor. Similarly, the franchisor also needs to be careful about franchisee selection and the area in which the franchisee wants to open a franchise outlet. Apart from that, there are several benefits of a franchise business.

Benefits of Franchise

Brand Name

A franchise agreement is an agreement that allows an individual to use the trademark, brand name, and logo of a well-known brand. That brand name recognition is the foremost and most important reason for opting for a franchise business. Marketing costs in case of other startups are usually high, but in case of a franchise, a franchisee can have the advantage of a well-known brand.

Quality Control

People prefer franchises because they know their expectations. Being a franchisee, you are ensured about the quality and need not worry about consistency of quality.

Managerial Assistance

When you are in business relations are with a reputed parent company, it is easy for both entities to succeed and grow. The franchisor has a detailed record of the management and technical issues, and they will use that expertise for the success of the franchise business.

Opportunity for Growth

The growth rate for franchise businesses is better than the growth rate for many independent businesses or startups.

Higher Success Rates

It is evident that the success rate for franchise businesses is better than the success rate for many independent businesses or startups.

Important Clauses of Franchise Agreement

Duration and renewal:

This clause contains the duration of the contract and renewal clause, if any, intended by parties.

Royalty clause:

This clause deals with the amount payable by a franchisee to the franchisor as a royalty. Royalty is a fee payable by a franchisee to the franchisor as consideration payable for using the franchiser's brand name and trademark.


Under the training clause franchisor promises to give proper training to the staff of franchisee to help him / her maintaining standards of the parent company.

Default and Termination:

The termination clause is one of the most important clauses in the franchise agreement. It states action upon whose commission the franchise agreement will be put to an end. There are certain general misconducts that are included in this clause.

Products and operations standard and requirements:

This clause contains details about the standards which are expected to be maintained by a franchisee.

Confidentiality clauses:

In this clause, franchisee undertakes to maintain business secrecy.

Duty of Franchisee:

It contains the duties and responsibilities of Franchisee.

Duty of Franchisor:

It contains the duties and responsibilities of franchisors.

Dispute resolution:

This clause is important because in case of any dispute between partiers there must be some mechanism to avoid further tensions.


It contains methods and expenditure for advertising.

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