A franchise agreement is a legal agreement that creates a franchise relationship between a franchisor and a franchisee. Within a franchise agreement, the franchisee is granted the legal right to establish a franchised outlet and operation where the franchisee, among other things, obtains the license and right to utilize the franchisor’s trademarks, trade dress, business systems, operations manual and sources of supply in offering and selling the products and/or services designated by the franchisor.
The Franchise Agreement must be legally disclosed as an exhibit to a franchisor’s Franchise Disclosure Document. The Franchise Disclosure Document must be disclosed to prospective franchisees prior to offering or selling any franchises. The franchise agreement serves as the primary and most important legal document that will govern and define the legal relationship between franchisor and franchisee. Within the franchise agreement, the franchisor will be granting its franchisees the legal right to establish and develop their franchised locations and, in turn, the franchisees will be undertaking the obligation to establish and maintain their franchised operations in accordance with the mandates of franchisor’s system and to pay franchisor certain on-going fees.
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