Chapter 18: FRANCHISE AGREEMENT

CHAPTER 18

Franchise Agreement

THE FOLLOWING AGREEMENT is a short franchise contract, which is provided for illustrative purposes only. Franchising is a complex business arrangement and should only be undertaken with legal advice. This contract should suggest to you what would be involved in franchising your business overseas. A franchise is a means by which an independent business enterprise may distribute goods or services in connection with a network of other independent owners. Each owner of a franchise will benefit from the support of the central organization, while at the same time have the advantage of being a sole proprietor.

Sample Contract: Franchise Agreement

This Agreement is made on [date] between [name], [a/an] [specify e.g., individual or type of entity and nationality or place of formation] of [address] (the “Franchisor”), and [name], [a/an] [specify e.g., individual or type of entity and nationality or place of formation] of [address] (“Franchisee”). COMMENT: This clause should identify the parties signing the agreement. To ensure that there is no misunderstanding, the full name of each party and the party’s business address should be given. If a party is an entity, partnership, corporation, limited company, or otherwise, the type of entity should be disclosed here. In international contracts, the description of each party includes the party’s nationality. Examples of descriptions: “a Société Anonyme organized and existing under the laws of France,” “a partnership organized and existing under the laws of the State of California in the United States of America,” or “an individual who is a citizen of Singapore.” RECITALS

A.The Franchisor possesses rights under various registered trademarks, service marks, trade names, and styles (including distinctive logos and copyrighted materials in which those items are used), including the name [name of trademark] (“the Intellectual Property”). Further, the Franchisor has promoted the use of and acceptance of the Intellectual Property through its own operations and the operations of its licensees and has developed an international [type of business] system (the System), which is identified with its Intellectual Property and which has public acceptance and good will; and B. The Franchisee desires to become a part of the System and to establish and operate a [type of business] using the Franchisor’s Intellectual Property and good will. Therefore, the Franchisor and the Franchisee agree as follows:

AGREEMENT

1. LICENSE. The Franchisor grants to the Franchisee a license, within the following territory (the “Territory”), to operate a [type of business] under the Intellectual Property during the term of the Agreement and any renewal of this Agreement. The Franchisee agrees to use the Intellectual Property in connection with, and exclusively for, the promotion and conduct of [type of business], as provided in this Agreement. To protect and enhance the value and good will of the Intellectual Property and to ensure that the public may rely on this Intellectual Property as identifying the quality, type, and standard of the [type of business], the Franchisee’s license is subject to the Franchisee’s continued adherence to the standards, terms, and conditions of this Agreement and of the Franchisor’s Business Manual. The Franchisor agrees to operate its [type of business] in accordance with the rules and procedures as prescribed by the Franchisor from time to time. The Franchisee acknowledges that the Franchisor is the exclusive owner of the Intellectual Property and agrees not to register or attempt to register the Intellectual Property in the name of any person or entity. The Franchisee will further not use the Intellectual Property or any part of it as any part of the Franchisee’s corporate name. Immediately on expiration or termination of this Agreement or any renewal, the Franchisee agrees to cease using the marks and to return to the Franchisor or to destroy effectively all documents, instructions, display items, and the like that bear any of the Franchisor’s Intellectual Property. 2. INITIAL FEE. In consideration of the opportunity to establish and maintain a [type of business], the Franchisee will pay the Franchisor as an initial fee [currency and amount]. This initial fee is based on the market potential of the Territory. The Franchisee acknowledges that this fee is reasonable. It is expressly understood that the fee will not be refunded to the Franchisee on expiration or termination of this Agreement for any reason. 3. FRANCHISEE’S OBLIGATION. The Franchisee will purchase [products] from the Franchisor for sale in the [type of business]. The terms of payment will be cash on receipt of invoice. 4. FRANCHISOR’S OBLIGATIONS. During the term of this Agreement, or any renewal of it, the Franchisor will do all of the following: a.Maintain and promote the System identified with the Intellectual Property within the

Territory; b.Maintain a national advertising program; c. Supply at no charge initial quantities of business advertising and promotional materials and provide additional material at reasonable prices; d.Provide signs, business forms, stationery, uniforms, and other standardized items at reasonable prices; e. Make available to the Franchisee on request the Franchisor’s management consultant facilities, know-how, and trade secrets in establishing, operating, and promoting a [type of business] regarding the selection of the premises, establishment of the outlets, institution and maintenance of office management systems and business operation procedures, institution and maintenance of advertising and marketing

programs and promotional campaigns, and selection, acquisition, and disposition of [products]; f. Assist the Franchisee, on request, to obtain its [product] shipments by arranging for delivery to the Franchisee.

5. FRANCHISEE’S OBLIGATIONS REGARDING OPERATIONS. The Franchisee has the following obligations: a.The Franchisee will commence operations within 90 days from the date of this

Agreement from at least one location within the Territory. b.The Franchisee will devote its primary and best efforts toward the development of the Territory, establishment and maintenance of an adequate number of outlets to serve the available market.

c. The Franchisee’s locations will be suitable for the operation of a [type of business] with the public. All locations will be kept in a clean and presentable condition at all times and adequately staffed by competent personnel. d.The Franchisee will provide and maintain telephone advertisements in the directories published for telephone service within the Territory. These advertisements must comply with the standard specification furnished by the Franchisor from time to time. e. The Franchisee will prominently display at each outlet the Franchisor’s then current

Intellectual Property, as specified from time to time by the Franchisor to promote the public’s uniform recognition of the Franchisor’s Intellectual Property. f. The Franchisee will require its personnel to wear uniforms and other standardized insignia and will comply with programs of standardization as promulgated by the

Franchisor from time to time to promote the acceptance of good will of the System and the Intellectual Property. g.The Franchisee will render prompt and courteous service and will conduct its [type of business] in such a fashion as to reflect favorably at all times on the System and on the good name, good will, and reputation of the Franchisor. The Franchisee will further avoid all deceptive, misleading, and unethical practices. The Franchisee will not use or cause to be used any mark in any advertising or promotion without the

Franchisor’s prior written approval. h.The Franchisee will prepare and maintain true and accurate records, reports, accounts, books, and data that will accurately reflect all particulars relating to the

Franchisee’s procedures and specification and that are or may be prescribed from time to time by the Franchisor for record keeping and reporting. The Franchisee will permit the Franchisor and its representatives to examine and audit such records, reports, accounts, books, and data at any reasonable time. The Franchisee will utilize in the [type of business] only forms that are in compliance with the Franchisor’s standard specifications and that have been approved by the Franchisor. The

Franchisee will furnish such information and make such standard reports as the

Franchisor may request for the proper administration of the System within a reasonable period of time after such a request. The Franchisee acknowledges that it has been furnished copies of the Franchisor’s forms and has been advised of the franchisor’s standard procedures and specifications referred to in this paragraph. i. The Franchisee will support and promote in its Territory all national promotions that the Franchisor may from time to time create for the System’s benefit. Such promotions may entail the issuance of certificates redeemable at any authorized Franchisee’s place

of business to be applied as a credit against purchase of the [products]. The

Franchisee will accept all certificates valued at 50 percent of the face value against any obligation it may have for payments to the Franchisor. When this limit is exceeded, all such certificates will be redeemed by the Franchisor at full face value. j. The dealer will operate the [type of business] in accordance with the standard procedures and methods established and modified from time to time by the Franchisor and set forth in its procedure and sales manual. The Franchisor acknowledges that it has been furnished and has examined a copy of this manual. The manual will remain at all times at the property of the Franchisee. The Franchisee will not disclose or cause to be disclosed the contents of the manual to anyone without the express written consent of the Franchisor. On termination or expiration of this agreement, the

Franchisee will return the manual to the Franchisor.

6. INDEMNIFICATION. The Franchisee agrees to indemnify and hold the Franchisor, its parent corporation, and their respective subsidiaries, officers, agents, and employees harmless for and against all loss, damage, liability and expenses incurred as a result of a violation of this Agreement and from all claims, damages, cause of action, or suits of any persons, firms or corporations arising from the Franchisee’s operation of the [type of business]. 7. INSURANCE. The Franchisee will procure and maintain in full force and effect insurance with companies approved by the Franchisor and with such limits as the Franchisor may specify from time to time to cover all insurable risks of the [type of business]. This shall include worker’s compensation, fire, burglary, and other insurance as may be deemed by the Franchisee and the Franchisor to be necessary or advisable for the proper protection in the name of the Franchisor and the Franchisee as their interest may appear. The Franchisee will furnish the Franchisor with evidence that the policy is in force. 8. NONCOMPETITION. During the term of this agreement and for [number] years after its expiration or termination, or any renewal, neither the Franchisee nor the Franchisee’s principals or associates, may engage in any operation of any [type of business] either within the Territory or in any event within a radius of [number] miles of any outlet operated pursuant to this Agreement. 9. DEFAULT. No failure to perform in accordance with any of the terms or conditions of this or any collateral agreement or other fault or defect shall be deemed to exist or occur unless such failure cannot be cured, or if curable shall continue for thirty days following the mailing or wiring to the party to be put into default of written notification of such failure.

10. TERM. This Agreement will be in effect from the date of acceptance by the Franchisor and continue for [number] years unless terminated sooner. This Agreement may be renewed at the option of the Franchisee for a term of [number] years. The Franchisee must notify the Franchisor of the election to exercise such option to renew in writing 90 days before expiration of this Agreement or any renewal. 11. TERMINATION. Provided the Franchisee is in good standing, the Franchisee may terminate this Agreement at any time by giving 90 days written notice to the Franchisor, except that such termination shall not relieve the Franchisee of any obligation to the Franchisor that shall have matured under or survived this Agreement or any collateral written Agreement of the parties.

12. FRANCHISOR’S RIGHTS ON TERMINATION. On termination of this Agreement, the Franchisor will be entitled to recover from the Franchisee all funds due under this Agreement, together with all costs and expenses, including reasonably attorney’s fees and disbursements, incurred or accrued by the Franchisor in enforcing its rights under this Agreement. The Franchisee will return to the Franchisor or destroy all literature, signs, advertising material, promotional matter, and other materials identifying the Franchisee with the Franchisor and will immediately cease to refer to or identity itself with the Franchisor or to use Intellectual Property or any simulation of it. The Franchisee will thereafter take no action detrimental to the Franchisor or the System. 13. COMPLIANCE WITH LAWS. The Franchisee is solely reasonable for compliance with all laws, statutes, ordinances, or codes of any public or governmental authority pertaining to the Franchisee for payment of all taxes, permits, licenses, registration fees, and other charges or assessments arising out of the establishment and operation of the business. 14. INDEPENDENT CONTRACTORS. The parties are not and shall not be considered joint venturers, partners, agents, servants, employees, or fiduciaries of each other, and neither shall have the power to bind or obligate the other except as set forth in this Agreement. There is no liability on the part of the Franchisor to any person for any debts incurred by the Franchisee unless the Franchisor agrees in writing to pay such debts. 15. WAIVER. The failure of either party to enforce at any time any of the provisions of this agreement or to exercise any option or remedy provided, shall in no way be construed to be a waiver of such provision or in any way to affect the validity of this Agreement. 16. NO ORAL REPRESENTATIONS. This Agreement, when accepted by an authorized officer of the Franchisor, together with any collateral written Agreement, signed by an authorized officer of the Franchisor, constitutes the entire Agreement between the parties. No other representation, provision, or agreement is of any force or effect. Date:

[signature] Franchisee

[Name of Company] Franchisor

By [signature] [name and title of person signing]