How to prevent risks in franchise contracts
The first step is to conduct due diligence. Franchisees should pay special attention to the following aspects of investigation:
1. Whether the franchisor has legal qualifications as a franchise entity; 2. Review whether the franchisor has joined the registration management of the franchise enterprise; 3. Intellectual property issues involved in franchising; 4. Review the information provided by the franchisor the authenticity of relevant promotional materials.
The second step is to sign a confidentiality agreement with each other. Before signing a franchise contract, the franchisor and the franchisee should sign a "Confidentiality Agreement" to protect the respective rights and interests of both parties. Franchisees should be aware of these types of provisions, which may hold you liable even if your employees reveal secrets about the franchisor. The franchisor should also protect the financial status and personal privacy of the franchisee.
The third step, read and understandFranchise Contract. Since the franchise contract is only a format contract prepared in advance by the franchisor, it will be necessary to standardize the content of the contract. Although the franchise business is different and the franchise rights will be different accordingly, the following terms should be required for all types of franchise contracts.
1. Contract period and extension. Normally, many franchisors allow the franchisee to extend the contract term when the contract term expires, but note that the conditions for extension should not be too harsh. The franchisee should ask for priority in granting extension rights under equal conditions to avoid opening up the market. In the end, the charter was terminated.
2. Initial franchise fee and other fees. The contract should specify the calculation method and payment method for the initial franchise fee, regular fees (such as royalties and advertising fees, etc.) and other fees.
3. Business premises. The franchisor can be responsible for selecting its business premises on behalf of the franchisee, or the franchisee can be responsible for site selection; but the franchisor should play the role of guidance and final approval.
4. Training. The contract should specify the nature, content, duration and location of the franchisor's training program. Some franchisors have optional training programs in addition to mandatory training programs.
5. "Business district" prohibition of competition clauses. Because the franchisee engages in business activities in a certain area after franchising and makes efforts for it. Therefore, in the contract, the franchisee should require the franchisor to make it clear that no franchise stores or directly-operated stores can be established in its business district.
6. Right of first refusal. In order to control the franchise system, some franchisors reserve the right to purchase franchised business from franchisees. Franchisees should pay attention to such restrictions, which is tantamount to giving Restrictions are set on future asset transfers.
7. Termination of contract and its consequences. Once a franchise contract is terminated or terminated, it is very complicated to deal with the consequences. Usually, many clauses will be added to require the franchisee to assume various obligations. Franchisees should pay special attention to such conditions.
If the above article cannot comprehensively solve your problem, Faced with how to solve this situation, you can consult with an online lawyer on the Legal Savior Network. A professional team of lawyers will answer this question for you.
