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The Law
"Franchise" Law is actually not a single area of law but rather a complex collection of laws that attempt to bring order and organize the complex relationships that exist among Franchisors, Franchisees, Vendors, Distributors, Suppliers, and all the other "players" that make a successful Franchise possible.
While Contract Law governs the Franchise or Dealer Agreement and is the foundation of Franchise Law, other key areas of relevant law inlcude: Antitrust Law, Business Law, Consumer Protection Law, Trademark Law and Real Property Law.
Franchise Business: Basics
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In the broadest sense, a franchise business is a method a company uses to distribute its products or services through retail outlets owned by independent, third party operators. The independent operator does business using the marketing methods, trademarked goods and services and the "goodwill" and name recognition developed by the company. In exchange, the independent operator pays an initial fee and royalties to the owner of the franchise.
The company that grants the independent operator the right to distribute its trademarks, products, or techniques is known as the franchiser. The independent, third party business person distributing the franchiser's products or services through retail or service outlets is called the franchisee.
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The Franchise Agreement
The franchise agreement is the cornerstone document of the franchisee--franchiser relationship. It is this document that is legally binding on both parties, laying out the rights and obligations of each. A sample agreement may either be attached to the disclosure statement or presented separately. Either way, you are entitled to receive it as a prospective franchisee five business days before signature. You should have it reviewed by a lawyer familiar with franchise matters--especially since most agreements are extremely one-sided in favor of the franchiser. No one should enter into a franchise and expect to have an evenly drawn contract.
The agreement will contain provisions covering, in considerable detail, the obligations of the franchiser (the company) and franchisee (you) regarding operating the business; the training and operational support the franchiser will provide (and at what cost); your territory and any exclusivity; the initial duration of the franchise and any renewal rights; how much you must invest; how you must deal with things such as trademarks, patents and signs; what royalties and service fees you will pay; tax issues; what happens if you should want to sell or transfer the franchise; advertising policies; franchisee termination issues; settlement of disputes; by the company, operating practices, cancellation, and attorney fees.
There is no standard form of franchise agreement because the terms, conditions, and the methods of operations of various franchises vary widely depending on the type of business involved. For example, franchises for printing, employment agencies, and automotive products will differ from the franchises for fast food service, convenience stores, or clothing.
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