Buying a franchise is an excellent opportunity for anyone who wants to get into business for themselves. The list of benefits that come with buying a franchise goes on and on. You get brand recognition, a built-in customer base, previously tested products, and additional marketing help. You can also expect training and support that's provided by the franchisor. These are just a few of the things that typically come with purchasing a franchise.
Simply put, buying a franchise allows you to open a business and become more profitable faster than opening a brand new business. Buying a franchise also comes with specific franchise rights. What are your rights as a franchisee? They vary from one franchise to another, but you should expect some basic franchise rights with any franchise. Let's examine them.
Basic Franchise Rights
The American Association of Franchisees and Dealers
(AAFD) has set forth a franchisee bill of rights
with several basic rights a franchisee can expect when buying a franchise. These are separate from the benefits of franchise ownership, as we discussed at the beginning of this piece. These basic rights include:
- The right to equity in the franchised business, including the right to meaningful market protection – This means that you, as a franchisee, have the right to have an investment in the company and that the franchisor should give you a protected area that ensures other franchisees aren't competing with you.
- The right to engage in business using the franchise products, services, and intellectual property as outlined therein.
- You have the right to full disclosure from the franchisor regarding franchise matters, including the franchisor's earnings data that may be relevant to the franchisee's decision to enter or remain in the franchise relationship.
- The right to initial and ongoing training and support.
- The right to competitive sourcing of inventory, product, service, and supplies.
- The right to reasonable restraints on the franchisor's ability to require extensive changes in the franchise system that could affect the franchisee's ability to profit.
- The right to marketing assistance.
- The right to associate with other franchisees for any purpose, including discussing business matters about the franchise operation.
- The right to free access to the franchisor for purposes regarding business.
- The right to local dispute resolution and protection under the laws and the courts of the franchisee's jurisdiction.
- The right to renew the franchise when the franchisee has met all criteria.
- The right to terminate the franchise agreement for reasonable and just cause on the part of either the franchisee or franchisor.
What About the Franchise Agreement?
The franchise agreement, signed by the franchisor and franchisee at the time of purchase, will typically address many of the basic rights found within the AAFD document. The franchise agreement overrides the AAFD, so it is important as a franchisee to be aware of everything found in the franchise agreement. All of the basic rights found in the AAFD document might be outlined in the franchise agreement. There may even be additional rights. On the other hand, the franchise agreement could include clauses that limit even your basic rights. There are lawyers that specialize in franchise laws. They can help you analyze the agreement and help you understand your franchise rights.
A typical franchise agreement covers several items. The primary things you will see in a franchise agreement include how you can use the franchise intellectual property (logo, products, advertising materials, the name, etc.), your rights regarding the ability to sell your franchise, your obligations to the franchisor, and non-compete items. Some things to know regarding the rights of buying a franchise does not give you:
- When you buy a franchise, you do not own the intellectual property. You are only gaining the license to use the franchise intellectual property. You cannot dictate how the franchisor uses their intellectual property.
- You can lose the right to use the intellectual property if the franchise believes you are doing anything that damages the company's reputation. You also lose the right to use the property if you leave the franchise.
- Your rights to the intellectual property are limited according to stipulations in the franchise agreement. This means a franchise can dictate how you engage in any other business if it is associated in any way with the franchise.
- You will be expected as a franchise owner to uphold a standard of behavior and business practices as they apply to ensure the integrity of the brand and the intellectual property associated with the franchise.
Not all franchise agreements are the same. Some franchises have extensive franchise agreements that dictate all of your rights, and some leave a lot of room for interpretation. The bigger the franchise, the more likely you will see very detailed clauses regarding your rights as a franchisee and what your obligations are to the franchise. In most cases, there are no stipulations that prevent you from owning more than one franchise. There will, however, most likely be a clause that prevents you from competing with the franchise.
Questions to Consider Regarding Franchise Rights
- Can I operate another franchise?
- What are my marketing obligations?
- What are the franchisor's marketing obligations?
- What training and support can I expect?
- Can I sell my franchise to a third-party?
These questions should be answered in the franchise agreement. Remember, your rights as a franchise owner are not always included in a franchise agreement beyond the basics. You have the right to read your franchise agreement and ask that it be revised to address any further rights you are not clear about. Most franchisors are happy to answer any questions you have regarding your rights as a franchise owner. Never hesitate to draft a list of questions to ask before you sign on the dotted line.
All USA Franchises is a Great Place to Start
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