A Franchise Agreement is a legal contract that regulates the relationship between two parties: a franchisor and a franchisee. Under this contract, the franchisor is legally bound to allow the franchisee to use their brand, trademark, and operational model to establish a franchised business that will be associated with the franchisor. The franchisee, in reward, is legally bound to pay the franchisor a fee for selling products or providing services under the franchisor's name.
The purpose of the document is to set the duties and rights that each party is entitled to. It lists all of their responsibilities, including payment obligations, which can be presented by a fee and a share of the profit that the franchisee will generate. It is necessary to describe the financial obligations in detail so in the future the involved parties will avoid any questionable situations that may occur.
A Franchise Agreement is usually limited to a certain period of time. Its length can vary from five to ten years but can be shorter or longer spending on the needs of both parties. After the agreement comes to an end, the parties can renew it, otherwise, the franchisee will lose all of their franchised rights.
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