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How to Draft a Business Franchise Agreement

By Aditi Mukherji, JD | Last updated on

If your small business is flourishing and you're ready to expand into a franchise, congratulations are definitely in order! But so too are some legal considerations -- especially when it comes to drafting a business franchise agreement.

As you know, a franchise agreement is essential to spell out each party's obligations and protect your legal and financial interests.

Here's how to draft a business franchise agreement -- or at least, how to get a solid start:

Franchise Agreement Basics

Here's a general overview what most franchise agreements need to cover:

  • Territory restrictions. The agreement must state if there are territory restrictions for the operator. Many agreements restrict how many of the same businesses can operate within a certain radius to protect the profits of the operator. Additionally, the contract should spell out if there are any state restrictions on where the business can operate.
  • Fees. All fees for using the franchise name and products must be stated in the franchise agreement. Additionally, specify the percentage of the profits that must be submitted to the parent company, as well as any licensing fees, copyright fees or other fees associated with using the name of the franchise. You should also include payment due dates and financing options.
  • Obligations. Be sure to spell out the purchaser's obligations in the agreement. These obligations may include insurance requirements, training fees for employees or marketing contributions. In addition, the document may also state that the business owner is required to purchase all supplies from the parent company exclusively.
  • Additional considerations. You will also want to have a host of other issues covered, including non-disclosure of your trade secrets, non-compete clauses, termination and renewal provisions, assignability, and indemnification, just to name a few.

Ready to Draft an Agreement?

Of course, this list only scratches at the surface of the terms you'll need to include in your franchise agreement. Take a look at this franchise agreement questionnaire, which brings up many issues that you'll want to address. This can help you avoid potential legal problems down the road.

Once you've hammered out the details, you may want to consider options such as using a standard franchise agreement form. For more complex agreements, however, it may be wise to hire an experienced contracts lawyer to draft an agreement tailored to your business' specific needs.

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