At Burgeon Law, if you are looking to expand your business by starting a franchise or you are a prospective buyer of a franchise outlet, we can assist you by drafting all required legal documents (franchise agreements, contracts, operations manuals, etc.) and offer you legal advice to assist you in making an informed business decision.
The most important document in a franchise arrangement is the franchise agreement which is a contract under which one party (the franchisor) grants another party (the franchisee) the right to carry on a business by supplying goods or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor. The business is often associated with a particular trademark, advertising or a commercial symbol owned, used, licensed or specified by the franchisor. The franchisee is required to pay a consideration (franchisee fee/royalty) to the franchisor before starting and/or continuing the business.
Franchise is a convenient mode/structure for a business to increase market share or geographical reach. Each franchise agreement should duly include the following clauses to safeguard the interest of the franchisor and franchisee:-
- Duties and obligations of the franchisor and franchisee: The agreement must clearly outline the duties and obligations of each party to the franchise agreement including their roles and responsibilities with regard to the franchise business.
- Minimum Investment and Infrastructure: The franchisor must ensure that the franchisee has the adequate financial resources and infrastructure to carry out the business operations. The franchisor could specify the conditions in the agreement with respect to the minimum investment required and specifics of the premise/infrastructure requirements to ensure compliance to the developmental schedule of the franchise business as agreed between the parties.
- Location of the franchise outlet: The franchisor may include the condition in the Franchise Agreement with regards to prior approval of the location of each franchise outlet by the Franchisor.
- Operating Manual: The franchisor could provide the franchisee with a manual that contains information, not limited to, but concerning outlet specification including layout of the franchise outlet, hiring policy to be followed, uniforms of staff members, training schedules, brand guidelines, manner of marketing and any other details to be adhered to operate the franchise business.
- Consideration:The Franchise agreement should include the upfront franchise fee, renewal fee, training fee, marketing fee or any other consideration/payment as agreed between the franchisor and the franchisee.
- Protection of intellectual property and confidential information: The protection of intellectual property forms an important aspect of a franchise agreement. The franchisor must stipulate negative covenants to protect the intellectual property and confidential information owned by the franchisor.
- Restrictions on suppliers: The franchisor may have a good negotiating power with certain suppliers and may obligate the franchisee to purchase materials/goods only from such suppliers. This may also be to ensure the quality and standard.
- Accounts and Inventory Audits: The franchisor may include conditions in the franchise agreement with respect to supervision of the activities of the franchise business operations by the franchisor.
- Management and Control: The franchisor may want the franchisee to personally participate in the direct operation of the franchise or designate some person as a full-time manager or supervisor to look into and control the activities of the business.
- Non-compete: Franchise agreement generally includes a non-compete clause binding the franchisee to not enter into or set up a similar business during the tenure of the franchise agreement and a certain period of time of post completion of the same
Burgeon Law has successfully represented a number of clients to expand their business by the mode of franchising. We understand that a franchise agreement requires diligent drafting and vetting to ensure that interest of the franchisor and franchisee is fairly represented and protected against future risk of conflict and litigation.