A franchise agreement is a legally binding document that outlines a franchisor’s terms and conditions for a franchisee. … The franchise agreement will govern everything about how the franchisee runs the new business and lay out what they can expect from the franchisor.
A franchise agreement protects both sides. It protects you as the franchisee and also protects the franchisor brand. When buying a franchise you will be making a large financial investment. A signed agreement gives you rights to help safeguard your investment in your business.
What are the three types of franchise agreements?
There are three basic types of franchising:
- Traditional or product-distribution franchising.
- Business-format franchising.
- Social franchising.
Many agreements last five to 10 years, while terms of 10 to 20 years aren’t uncommon. Your contract should last long enough for you to recoup your investment. While you may prefer a shorter term for your initial agreement, beware that the franchisor can change the terms of the franchise agreement when you renew.