Franchise Agreement Commercial Law: What You Need to Know

If you`re considering franchising your business or becoming a franchisee, it`s important to understand the legal aspects involved in franchise agreements. Franchise agreements are legally binding contracts that outline the rights and obligations of both parties – the franchisor and the franchisee. In this article, we`ll take a closer look at franchise agreement commercial law and what you need to know before signing on the dotted line.

What is a franchise agreement?

A franchise agreement is a legal contract that gives a franchisee the right to operate a business using the franchisor`s trademark, business model, and operating systems. In return, the franchisee agrees to follow the franchisor`s system and pay certain fees and royalties. The franchise agreement usually covers a range of topics, including territory, business operations, advertising, training, and termination.

Franchise agreement commercial law

Franchise agreements are governed by commercial law, which is a body of law that regulates business transactions. Commercial law covers a wide range of areas, including contract law, tort law, intellectual property law, and securities law. In the context of franchise agreements, commercial law plays a key role in ensuring that both parties comply with their obligations and that the franchisee is protected from unfair practices.

Key terms in franchise agreements

Franchise agreements can be lengthy and complex, but there are some key terms that are worth paying attention to. Here are a few of them:

Territory: The franchise agreement will usually specify the geographic area in which the franchisee can operate. This can be an exclusive territory (meaning no other franchisee can operate in the same area) or a non-exclusive territory (meaning the franchisor can open other franchises in the same area).

Fees: The franchisee will typically pay an initial franchise fee to the franchisor, as well as ongoing royalties based on a percentage of sales. The franchise agreement will spell out the exact amounts and payment schedule.

Operations: The franchisee will be required to follow the franchisor`s system of operation, which includes things like product offerings, pricing, marketing, and customer service. Failure to follow the system can result in termination of the franchise agreement.

Training and support: The franchisor will usually provide training and ongoing support to the franchisee, including help with site selection, store design, and marketing.

Intellectual property: The franchisee will be granted a license to use the franchisor`s trademark and other intellectual property. The franchise agreement will specify the terms of this license, including any restrictions on use.

Termination: The franchise agreement will outline the circumstances under which either party can terminate the agreement, as well as any penalties or fees associated with termination.

Legal requirements for franchise agreements

In addition to commercial law, there are also specific legal requirements that must be met when drafting a franchise agreement. These requirements vary depending on the location of the franchisor and franchisee, but they often include things like:

Disclosure: The franchisor must provide the franchisee with a disclosure document that includes information about the franchisor`s history, financials, and legal disputes.

Registration: Some states and countries require franchisors to register their franchise offering before selling franchises.

Good faith and fair dealing: Both parties must act in good faith and deal fairly with each other.


Franchise agreement commercial law is a complex area, but it`s crucial for both franchisors and franchisees to understand the legal requirements and obligations involved. Before signing a franchise agreement, it`s important to seek the advice of a lawyer with experience in franchise law. With the right legal guidance, you can ensure that your franchise agreement protects your interests and sets you up for success.