Franchise Agreement

A franchise agreement is an agreement wherein the franchisor agrees to lend the trade name or business system to another person or entity (the franchisee). The contract will define the basis of the arrangement between the two parties, specifying the consideration to be paid by the franchisee (partial payment is often in the form of royalties for the use of the franchisor’s trademark), how the brand name can be used, the length of the arrangement, and clauses dealing with penal provisions, ranging from fines and compensation to cancellation of the franchise.

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Advantages of a Franchise Agreement

Sets Standards

A franchise agreement allows the franchiser to set a standard of quality with regard to the various aspects of a business before signing on the franchisee.

Brand Control

Through such an agreement, the franchiser can specify the way in which the franchisee uses the brand, including the penalties in case of violation of the rules.