How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Many individuals are becoming franchisees instead of having a traditional nine-to-five job. This means that many people purchasing franchises have little to no experience reading legal documents. Time to brush up on your legal jargon and/or hire a good franchise lawyer to guide you through the process.
Franchise Agreements
Although this is an ideal path for many, it is very important that you carefully review and consider the franchise agreement before you sign on the dotted line. Franchise agreements are legal documents signed by both the franchiser and the franchisee, binding the two together in running the business.
The franchise agreement will outline what the franchiser expects from you, the franchisee, when it comes to business operations. These agreements have been specifically designed to make sure all of a company's franchisees are running their business in a consistent manner.
Franchise agreements come with fixed terms. Keep in mind that you are kind of leasing the franchise business, not purchasing the right to use the company's brand name forever.
No standard types of franchise agreements exist, because the methods of operations, terms and conditions vary according to the kind of business. The length of the term also varies widely but often correlates with the length of the lease. Term length should be clearly outlined in the franchise agreement.
When the fixed term comes to an end, you will likely have the choice to renew the franchise agreement or to end the partnership. Franchisees typically have set renewal conditions.
Franchise Renewals
Although renewal conditions vary according to franchise, most require you to have complied with the terms detailed in the current franchise agreement. A majority of franchisers also require their franchisees to let them know about six months in advance if they wish to renew the agreement.
Review your original franchise agreement to find out how long the length of renewal term will be and how often you are allowed to renew. Read the new franchise agreement to determine whether your franchiser has increased any fees or royalties or if the financial terms will stay the same.
If you decide not to renew your franchise agreement, your franchise partner can allow somebody else to take over. Bear in mind that a majority of franchise agreements include a non-competition clause, which means that you can't operate the same type of business on your own for about ten years.
I know that is a lot of information to take in. While it may be intimidating, being your own boss and controlling your family's destiny is also very rewarding. Don't let the legal paperwork stand in your way of your dreams!
