Franchise Agreement

Franchise Agreement

Drafts a litigation-hardened, FTC-compliant U.S. Franchise Agreement that protects franchisor IP and system standards while defining franchisee rights and obligations.

Prerequisites

Collect before drafting:

• Parties — legal names, state of organization, principal place of business (both sides)
• Brand/IP — trademarks, service marks, trade names, logos, proprietary system description
• Territory — exclusive/non-exclusive/protected; defined by address, radius, zip codes, or other demarcation
• Fees — initial fee, royalty rate/basis, ad fund %, technology fees, transfer fee, renewal fee
• Training — duration, location, attendee requirements, cost allocation
• Site/format — fixed location or mobile; site selection responsibility; lease approval requirements
• Carve-outs — any deviations from franchisor's standard form

Quick Start

1. Confirm FDD exists and is current — agreement must not contradict FDD disclosures
2. Draft agreement sections per the structure below using collected prerequisites
3. Build fee schedule with precise Gross Sales definition
4. Draft default/termination matrix with cure periods
5. Add post-term non-compete tailored to jurisdiction
6. Attach exhibits (territory map, personal guaranty, operations manual acknowledgment)
7. Run regulatory checks (FTC Rule, state relationship laws, registration states)

Agreement Structure

Fee Schedule

Define Gross Sales with specificity — enumerate exclusions (sales tax, refunds, employee meals, etc.) to prevent disputes.

Default & Termination Matrix

Post-Term Non-Compete

Draft as 1–2 years from termination/expiration, within specified radius of former location and all system locations. Include blue-pencil clause. [VERIFY applicable state non-compete statutes]

Exhibits

• Territory map and approved location description
• Personal guaranty form (standard for entity franchisees)
• Operations manual acknowledgment
• Table of contents if agreement exceeds 10 pages

Regulatory Checks

• FTC Franchise Rule (16 C.F.R. Part 436): Agreement must align with FDD; prohibit misrepresentations; allow required rescission periods [VERIFY current Rule provisions]
• Relationship law states (CA, IL, IN, IA, MI, MN, NE, NJ, WA, WI): Require modified termination, renewal, and transfer provisions — flag if any are operating states
• Registration states (CA, HI, IL, IN, MD, MI, MN, NY, ND, RI, SD, VA, WA, WI): May restrict franchisor home-state governing law — flag if applicable

Common Pitfalls

• Vague territory language — do not guarantee exclusivity unless territory is defined and exclusive in fact; this is a top litigation trigger
• Goodwill misattribution — all goodwill must flow to franchisor; never imply franchisee acquires mark rights
• Overbroad non-competes — must be reasonable in scope, duration, and geography to be enforceable
• FDD/FA inconsistency — agreement terms that contradict FDD disclosures create regulatory and litigation exposure