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The franchise agreement, step by step

Published in: Startups, Business and Innovation
by Arlo Canella
Home > The franchise agreement, step by step

The franchise contract is a basic legal agreement between the franchisor and the franchisee, which establishes the rights and duties of the parties involved. This article looks in detail at the stages and main elements of the franchise agreement.

Introduction to the franchise agreement

The franchise contract is governed by a special law and consists of the agreement between the franchisor, i.e., the owner of the trademark and business model, and the franchisee, the entrepreneur who wishes to start a business by taking advantage of the franchisor’s trademark and know-how. In this article, we will look in detail at the various stages and components of the franchise agreement, so as to help entrepreneurs better understand their rights and obligations.

In the first place, before proceeding with the conclusion of the contract, the franchisee can request the Franchise Information Document (DIF) from the franchisor. The DIF is a mandatory document in Italy and contains all relevant information about the franchisor, its business model and the terms of the franchise agreement.

Once the DIF is obtained, the franchisee must carefully evaluate the franchisor and its business model, verifying the financial soundness, reputation in the market, and success of the proposed business model.

Main elements of the franchise contract

To ensure that the contract is properly drafted and the interests of the parties involved are protected, it is important to clearly define the rights and duties of franchisors and franchisees. Among the main aspects to be considered are the following:

  1. Rights and Duties of the Franchisor and Franchisee: The franchise agreement must clearly define the rights and duties of both parties. The franchisor’s rights include, for example, the right to receive the initial fee and royalties, while the duties include providing support and training to the franchisee. Franchisee rights include the use of the franchisor’s trademark and know-how, while duties include compliance with the rules and procedures established by the franchisor.
  2. Contract Duration and Renewal Clauses: The franchise agreement must state the duration of the agreement and the conditions for its renewal. Generally, the duration of a franchise agreement varies between 5 and 10 years, but may differ depending on the industry and the specific needs of the parties.
  3. Confidentiality and Non-Competition Clauses: The franchise agreement must include confidentiality and non-competition clauses in order to protect the franchisor’s know-how and confidential information. In addition, these clauses serve to prevent the franchisee from starting a competing business during the term of the contract and for a period after its expiration.
  4. Termination and Penalty Clauses: The franchise agreement must provide the conditions under which the agreement can be terminated before its natural expiration and any penalty clauses that apply in the event of default by the franchisee or franchisor.

Legal advice in drawing up the franchise contract

Consulting with an experienced franchise lawyer is an essential step in ensuring that the franchise contract is properly drafted and complete. The assistance of a legal professional provides a thorough understanding of the terms of the contract and the respective rights and obligations of the parties involved. In addition, the lawyer can provide valuable advice in negotiating the terms of the contract, aimed at protecting the interests of the franchisee or franchisor.

A franchise lawyer has the expertise to verify that the contract complies with applicable franchise laws and regulations, thus ensuring maximum protection and security for the client.

In selecting the lawyer best suited to your needs, it is important to consider the lawyer’s experience and expertise in the franchise industry, his or her ability to understand the client’s specific needs and propose customized solutions, as well as the proposed fees and contract terms. A wise choice can make all the difference in terms of the security and success of the franchise business.

Monitoring performance and managing the contract over time

As a legal professional, it is important to stress the importance of constant monitoring of the performance of the business and the relationship with the franchisor during the term of the franchise agreement. Any problems or difficulties should be addressed promptly and shared with the franchisor to seek shared solutions.

In addition, a periodic review of the franchise agreement should be conducted to verify that the terms are still appropriate to the needs of the franchisee and the franchisor. If necessary, changes to the contract can be negotiated, again with the help of an experienced franchise lawyer.

Upon expiration or termination of the franchise agreement, the franchisee and franchisor should prepare properly by evaluating the options available, such as renewing the contract, selling the business, or transitioning to another business model.

Ultimately, a thorough understanding of the terms of the contract and the responsibilities of both parties is critical to the success of the franchise business. The assistance of an experienced franchise lawyer can make all the difference in the negotiation and management of the contract, ensuring that the interests of franchisor and franchisee are fully protected.

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Publication date: 22 March 2023
Last update: 7 September 2023
Avv. Arlo Cannela

Avvocato Arlo Canella

Managing Partner of Canella Camaiora Law Firm, member of the Milan Bar Association, passionate about Branding, Communication and Design.
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