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Franchise Agreement-Outline |
The first step in franchising your business is to register your Trade name and Trademarks with the U.S. Trade mark office. Assuming that you already have an operating unit, the next step would be to open a 2nd, 3rd, and even a 4th operating unit, if capital and time allows. It will help you in franchising your business and you will develop more credibility with franchise prospects, because you have a proven track record that you have been successful with 4 units as opposed to just one unit. The next step is to develop a Uniform Franchise Offering Circular-UFOC and a franchise agreement and very specific systems for every aspect of your business from site selection, lease negotiation, training, unit operations, hiring / firing, advertising, accounting, etc. This is what you are really selling as a franchisor--a total business system which ensures success. All the systems must be put in manual form so that they can be taught and referred to on an ongoing basis. Great emphasis must be placed on strict adherence to the system. It is here that the success of the franchise is created. Stick to the system, which is what it all about, if you are franchising your business.
The most important documents, if you are interested in franchising your business, are the Uniform Franchise Offering Circular or UFOC and the franchise agreement. The Uniform Franchise Offering Circular-UFOC is a document which contains a history of the company background information on the owners and officers of the company, a breakdown of the required investment, financial statements for the last 3 years (audited), a listing of existing franchises, litigation history, and other information on the company. The franchise agreement is a document which spells out in details the terms and conditions and responsibilities of the franchisor and franchisee. The two principals in a franchising agreement are the franchisee and the franchisor. The dealer is the franchisee, a small-business owner who contracts to sell the goods or services of the supplier -- the franchisor -- in exchange for some payment ( usually a flat fee plus royalties expressed as a percentage of sales by the franchisee). The franchisor typically provides building plans, site selection help, managerial and accounting systems, and other services to assist the franchisee. The franchisor also provides name recognition for the small-business owner who becomes a franchisee. This public image is created by shoppers' familiarity with the franchise in other geographic areas and by advertising campaigns, all or part of which is paid for by contributions by the franchisees.
The Federal Trade Commission requires that these documents be given to a franchise prospect at the first personal meeting or at least ten days prior to the signing of the franchise agreement and the payment of the franchise fee. You will need help in the form of an accounting firm experienced in franchising, a franchise attorney, and a good franchise consultant. The franchise consultant can actually save you money. Below are the Table of Contents and an outline of a typical franchise agreement. This will give you some idea what is involved if you are franchising your business.
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TABLE OF CONTENTS
I FRANCHISE AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1 Grant of Franchise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2 Protected Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3.2 Renewal Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3.3 Refusal to Renew . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II OBLIGATIONS OF FRANCHISOR . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1 Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Lease Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Store Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Confidential Operating Manual . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.6 Store Opening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.7 Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8 Regional Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.10 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.11 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III OBLIGATIONS OF FRANCHISEE . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Tenant Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Owner Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5 Opening of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6 Business Hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7.1 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7.2 Display of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7.3 Name Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.8 Confidential Operating Manual . . . . . . . . . . . . . . . . . . . . . . . . .
3.9 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.10 Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.11 Independent Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.12 Accounting Records and Reports . . . . . . . . . . . . . . . . . . . . . . . .
3.13 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.15 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.17 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.19 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.20 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.21 Franchise Sales Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.22 Success of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.23 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1 Initial Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Continuing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Promotional Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.1 Franchise Contributions . . . . . . . . . . . . . . . . . . . . . . . .
4.3.2 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.3 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.4 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4 Transfer Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.5 Late Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 Transfer Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.2 Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.3 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI TERMINATION AND DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Termination by Franchisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Rights and Duties of Parties Upon Expiration or Termination
6.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Payments, Notices and Communications . . . . . . . . . . . . . . . . . .
7.4 Attorneys’ Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.7 Other Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.9 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.12 Other Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.13 Additional Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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