Franchise contract: what is it and what is it for?

July, 29 2022

Starting a business can be complicated if we do not have the right advice or if we are not clear about what steps to take at any given moment. 

From Jeff we explain what a franchise agreement is and what it' s for. 

This document not only establishes the foundations on which a business model is based: it also gives us a great deal of information about a franchisor, its business model and the commitments that must be fulfilled.

Discover how to open your own business

What is a Franchise Contract?

A franchise agreement is a private and legal document agreed between two parties: franchisor and franchisee. 

With their signature, the former grants the latter the right to develop a commercial activity and their own system for marketing products or services.  

This includes the right/obligation to use the company's name or brand, know-how, and business method. 

The franchise contract is an example of how this business model works, and establishes rules to guarantee its viability and growth. .  At the end of the day, a franchise is precisely about repeating a formula with proven profitability. 

Are there different types of franchise agreements?

All franchises of a brand follow the same guidelines in terms of operation, suppliers, image, methodology, processes, logistics, etc. 

However, there are different types of contracts depending on the goods and/or services to be produced or marketed. 

  1. Commercial franchise or distribution agreement. We acquire the right to sell the franchisor's products.  These products may be manufactured by the company or by third parties.
  2. Business or service franchise agreement. It allows us to provide the same services as the franchisor, under its sign, trade name or brand, and following its instructions, as in the case of Jeff Franchises.

Start up your own day-to-day service business

What does a franchise agreement include?

A franchise agreement is a comprehensive document that reflects renewals, penalties, and assignments related to this business relationship. 

It must include: 

  • Identification of the parties involved. 
  • Pre-contractual information (ownership of the brand, sector, characteristics, activity, experience, etc.).
  • Franchisee Obligations
  • Franchisor Obligations
  • Exclusive agreements (territorial, supply or offer).
  • Supply clauses.
  • Duration of the contract.

What to look for in a franchise agreement?

This type of contract is very descriptive. And because they are standard (there isn’t a franchise agreement for each franchisee), they ensure homogeneity and simplicity. 

The most important thing to check in a franchise contract is its duration, the object of the business and the commitments agreed to by both parties.

It’s also necessary to be clear regarding issues such as the area of operation, royalties, or "non-competition".


What is this type of contract for?

The purpose of franchise agreements is to regulate the relationship between the parties. In this case, it establishes the basis for the franchisor to grant the franchisee the right to open a business of its franchise network and to develop the activity in accordance with the rules established in the contract.

This document is key to extend the venture with the franchise business model.


How long does the franchise contract last?

Although franchise contracts have a fixed term, almost all of them include the possibility of extension or renewal. 

Its usual term is between five and ten years, although an automatic renewal can be agreed on for a franchise.


What is a contract like to open a franchise with Jeff?

A franchise agreement does not ensure the success of a business or its profitability. However, at Jeff we create business models that seek to create a real bond with customers over the long term. 

To achieve this, we accompany our partners during their entrepreneurial process and communicate with them in a direct, clear, and transparent manner.

If you are thinking of opening a franchise and want to know more about our franchise agreements, please contact us.

Discover how to open your own business

Javier Pelayo
Javier Pelayo
Franchising 101

Subscribe and stay up-to-date

No spam, we promise! We'll only send you important emails that you're interested in

Subscribe and stay up to date

¡Sin spam, lo prometemos! Solo te enviaremos correos importantes y de tu interés

Subscribe and stay up-to-date