The contract is the key piece that regulates the legal relationship between the franchisor and the franchisee. Know all the details of this important legal document. Every good entrepreneur knows how beneficial it can be to bet on a franchise system. Therefore, this is a business model that is very popular in the world.
- The reason for its reputation: It is that it is seen as a guarantee of almost certain success. When an entrepreneur invests to become a franchisor, he pays for the right to faithfully reproduce an already proven brand with a good number of captive customers.
- A key factor to start in this business: It is the franchise contract, a fundamental piece that regulates the legal relationship between the main actors in this business: the franchisor and the franchisee. Therefore, it is essential that you inform yourself about this important factors and here we will answer the most common questions that arise in this regard:
- How important is the franchise agreement? It is possible to say that the franchise agreement represents the core of the relationship established between the franchisor and the franchisee. Its content perfectly stipulates all the actions that must be carried out while the contractual relationship between the parties lasts, as well as the sanctions for non-compliance or violation of the agreed upon.
- Is there a pre-established franchise agreement format? It cannot exist, since each franchise has its own technological locks and competitive advantages, a situation that makes them different even with the franchises of the same line of business. Think of the franchise agreement as a “tailored suit”, so it is worth noting that copying a foreign franchise agreement does not work either, as it does not suit the legal market in your country.
- Do I have to pay any advance prior to signing the contract? No advance must be paid before the contract is signed, since there is no formal and legal commitment to demand any prior payment. In the act of signing the franchise contract is when the agreed payment of the initial franchise fee must be made.
- Is the franchise agreement limited in force? Indeed, it is valid and it is established according to the recovery of the total investment and at the same time, so that the franchisor has the opportunity to analyze if the performance of the franchisee is carried out according to the parameters established in the contract , manuals and training, as well as for the franchisee to analyze whether the franchisor’s behavior was as agreed.
- At the end of the term of the contract, do I have to pay a fee to renew it? Not in most cases, unless it is stipulated in the franchise contract at the time of signing by both parties.
- What documents must be delivered to me prior to signing the contract? In addition to all the information regarding the franchise, the delivery of the Franchise Offering Circular (COF) is mandatory. This document aims to make known to the prospective franchisee the most relevant information about the franchise, as well as technical assistance, who or what people grant it, Performa statements (not mandatory), list of franchisees in operation and, in most cases, a copy of the franchise agreement. To receive this document, the franchisor requires the franchisee to sign a confidentiality letter, as the document contains industrial secrets and technological locks of the franchise.
- What documents must I receive at the time of signing the franchise agreement? The manuals (know-how), the zoning plan (if the acquired franchise requires it), the construction project, remodelling or adaptation of the premises, the invoice for the payment of the initial franchise fee (franchise fee), the program training and training and of course, a copy of the franchise agreement, among the most important.
A key factor to start in this business is the franchise contract, a fundamental piece that regulates the legal relationship between the main actors in this business: the franchisor and the franchisee so make sure to consider all the above factors when you enter in franchise business in India.
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