International Business Law Advisor Insights on International Litigation & Transactions

How to Draft an International Franchise Agreement. The Basics.

Posted in Business Transactions, International Investments

Miami Franchise attorneyI’m seeing a big increase in the number of international franchise agreements being reached here in Miami. I suspect it’s the same for other parts of the country.

Given the recent stream of positive economic news, it’s not much of a surprise.

As economies all over the world bounce back from the global financial crisis, U.S. companies are looking overseas to capture new markets.  Of course, the same is true for foreign companies looking to penetrate the U.S. market.

Whether yours is a U.S. or foreign-based business, an international franchise is a quick and effective way to expand into overseas markets.

Different Types of Franchises.

A franchise can be analyzed in terms of the number of outlets that are authorized.:

  1. Direct Franchise: The franchise grants the franchise right to operate only one outlet.
  2. Area development:  the franchisor gives the franchisee the right to develop multiple outlets in a designated territory
  3. Master Franchise:  the franchisor appoints a master franchisee that has the right to appoint sub franchisees in a designated territory. This approach is used for a large territory, such as all of China or Brazil.

The Franchise Agreement

Whichever type of franchise you choose, it will be governed by a franchise agreement.

The franchise agreement is the cornerstone document of the franchisee -franchisor relationship.  The agreement is legally binding on both parties, laying out their respective rights and obligations.  It is on this basis that a long term relationship grows and prospers.

When drafting an international franchise agreement be sure to include provisions covering, in considerable detail, the obligations of the franchisor (the company franchising its business) and franchisee (the individual buying a franchise) regarding the day to day operation of the business.

A well-drafted franchise agreement will include:

  • Right to use franchisor’s intellectual property
  • Franchise territory and appropriate exclusivity
  • Expansion options
  • Business Development obligation
  • Royalty fees that are payable
  • Equipment and supplies
  • Training and Proprietary Manuals
  • Term and Termination
  • Dispute resolution

Of course, because every case is different there is no standard form of franchise agreement because the terms, conditions, and the methods of operating vary widely.

For example, franchises for printing, employment agencies, and automotive products will differ from the franchises for fast food service, convenience stores, or clothing.

Conclusion

Entering into an international franchise agreement is an excellent way for a business to capture a foreign market. Unlike other business arrangements, an international franchise is a time-tested business enterprise that poses less risk than other types of international expansion vehicles.