English
Le français
Romana
What is a franchise agreement?
The Franchise Agreement will govern everything about how the franchisee runs the new business and what they can expect from the franchisor. Learn more about the content of the agreement and what it will mean if you decide to franchise your business or become a franchisee.
Îregarding franchises, legal aspects and contract clauses are extremely important to protect the interests of all parties involved. Here are some key clauses that a franchise contract should include:
1. Definition of the relationship between the franchisor and the franchisees: It is important to clearly establish the relationship between the franchisor and the franchisees in terms of the rights and obligations of each party.2. Intellectual property protection: There should be adequate clauses to protect the franchisor's intellectual property rights, including trademark, know-how and other intellectual property rights.
3. Obligations of franchisees: It is important to clearly specify the obligations of franchisees in terms of operating the business, complying with quality standards and commercial policies, as well as paying taxes and other associated charges.
4. Support provided by the franchisor: There should be clauses specifying the support provided by the franchisor to franchisees, including training, start-up assistance, ongoing support and access to resources.
5. Duration of the contract: The duration of the contract and the conditions for its extension or termination must be specified.
6. Confidentiality and non-positioning: There should be clauses protecting the confidentiality of commercial information and specifying post-contract positioning and competition restrictions.
Îin general, a franchise agreement should be well drafted and tailored to the specific needs and circumstances of your franchise to ensure success and protection of the interests of all parties involved.
Franchise Legal Aspects Contract Clauses
Îin Romania, a business becomes a franchise if it meets the definition established by Law 179 of 2019, known as the Franchise Law. ÎAccording to the legislation, there are three general requirements for a franchise agreement to be considered official:
The franchisee's business is substantially associated with the franchisor's brand. Îin franchising, the franchisor and each of the franchisees share a common brand.
The franchisor exercises control or provides substantial assistance to the franchisee in the manner in which it uses the franchisor's brand to conduct business. Because the franchisee is an independent contractor and not a joint employer, these controls generally cover brand standards and do not extend to human resources
of the franchisee, nor do they extend to the way the franchisee manages its business – In addition to meeting the requirements of the brand standards – daily.
The franchisor receives a fee from the franchisee for the right to enter into the relationship and conduct business using the franchisor's trademarks. The fee may be an initial fee or may be an ongoing fee.
A franchise agreement is a license that sets out the rights and obligations of the franchisor and the franchisee.
This agreement is designed to protect franchisor's intellectual property (IP) and to ensure consistency in the way Fecare operates under its brand. Even if the relationship is codified in a written agreement that is meant to last up to 20 years, the franchisor must have the ability to develop the brand and its consumer offering to remain competitive.
The contract must also be flexible enough to allow the franchisor to make contractual changes that reflect decisions in response to the franchisees' specific needs. However, there are no changes to the stipulation that franchisees must manage their independently owned businesses on a day-to-day basis in accordance with brand standards.
Before signing a franchise agreement
Law 179.2019 requires franchisors to provide prospective franchisees with a Franchise Information Disclosure (DDI) document, which is designed to provide prospective franchisees with the information necessary to purchase a franchise. Considerations include risks and rewards, and how the franchise compares to other investments.
The franchise agreement is long, detailed and provided to potential franchisees as an exhibit to DDI well in advance of signing it to ensure they have time to review the agreement and receive advice from their attorneys and other legal advisors.< /p>
Franchise Agreement Pitfalls
Franchising is a consistent and sustainable replication of a company's brand promises, and a contract must detail the many business decisions involved in creating a franchise system. It is complex and, in most cases, a contract of adhesion, which means an agreement that is not easy to
modified.
Because a franchise agreement is meant to reflect the uniqueness of each franchise offering and explain the dynamics of the intended franchise relationship, copying the agreement of another franchise system is probably the biggest mistake a new franchisor can make.
When developing an appropriate set of franchise agreements, each of the elements of the franchise must be evaluated.
Before the lawyers start drafting the agreements, it is essential for the franchisor to first develop their business plan and decide on all these important issues. For most franchisors, it is important that, in addition to working with qualified franchise attorneys, they first work with experienced and qualified franchise consultants to develop their franchise offering.
Recap
There are several pitfalls that can occur in a franchise agreement that should be avoided to protect the interests of all parties involved. Here are some of the most common pitfalls:
1. Unclear or Ambiguous Clauses: It is important to be clear and precise about the terms and conditions in the contract so that there is no ambiguity or uncertainty about the rights and obligations of each party.
2. Unspecified Fees: Some franchise agreements may contain additional unspecified fees or it may not be clear who will pay certain fees or expenses. This may lead to further dispute between franchisor and franchisees.
3. Length of contract too long: Another important aspect is the length of the contract, this must be appropriate and adapted to the specific circumstances of your franchise. In some cases, a contract can be reached that is too long, which can be unjustified and can limit the franchisees' options and freedom of action.
4. Over-imposing obligations: Other pitfalls may include over-imposing obligations on franchisees, including excessive training requirements, purchasing goods and services exclusively from the franchisor, or other obligations that may be too difficult to fulfill.
5. Lack of contract exit clauses: It is important to provide adequate and clear clauses regarding the possibility to leave the franchise network, including the manner and terms in which this can be done.
In general, it is important to carefully review all aspects of the franchise agreement and consult with a franchise attorney to ensure that it properly protects your interests and those of the franchisees.