INTRODUCTION
In this part, we will be discussing the duties and responsibilities the Franchisor and the Franchisee has to adhere to during the course of the Franchise Agreement.
DUTIES AND RESPONSIBILITIES OF THE FRANCHISOR
For maintaining the contractual relationship with the Franchisee, the Franchisor has to adhere to a set of duties and obligations.
- Providing an Operational Narrative: The Franchisor is required to share a copy of their operation manual containing information of proprietary and operational nature, which shall include the specification regarding the layout of the outlets, hiring policies, operating procedure, training manual including the technical know-how to perform the business operations for example (use of equipment, understanding of the methods, etc., The Franchisor shall be obligated to do so to maintain the standard of the Franchisor’s business as it is of paramount importance for the Franchisee to deliver the similar quality of the product/services to its consumers that of the Franchisor’s business.
- Geographical Setting: The Franchisor can assist the Franchisee in selecting the best location for its Franchise to attract more customers. In case, Franchisor wishes to provide sole exclusivity to the Franchisee of a particular geographical location then, a clause needs to be incorporated in the Agreement stipulating the same.
- Supervision and Support: During the course of Franchise Agreement, the Franchisor is required to offer supervision and support to the Franchisee for the promotion of business, advertising, management, general and business operations etc.
- Assistance in the Legal and Regulatory Process: While setting up of the Franchise outlet, there is a need to obtain legal and regulatory approvals from the local authorities. The Franchisor shall assist the Franchisee to procure the approvals to conduct the business. .
DUTIES AND RESPONSIBILITIES OF THE FRANCHISEE
The Franchisee has to adhere to the following set of duties and obligations, since compliance with the following obligations is a prerequisite for successful Franchising.
Following are certain necessary obligations:
- Infrastructure and Investment: To operate the business of the Franchisor, the need for sufficient infrastructure and financial resources with the Franchisee is a necessity. The Franchisee is required to make an initial capital investment as an assurance that the standards of the Franchisor’s business can be met by the Franchisee’s business operation.
- Geographical Setting: The main purpose behind the Franchise, is to expand the business operations and hence the Franchisee should be set up at a place wherein it will attract a large number of customers. The Franchisee is required to select the location of the Franchise and then verify the same from the Franchisor. Moreover, post-termination of the Agreement, a clause regarding the non-competing clause shall be applicable for setting up a similar business in the geographical setting of the franchise.
- Safeguarding Confidential Information and Intellectual Property Rights (IPRs): A brand is established based on the quality and uniqueness of the product or services offered. Therefore, safeguarding Intellectual Property Rights (IPRs) is one of the major aspect of the Agreement, it is important to understand that if the IPRs are infringed, or if there is a leak of the confidential information, then the brand of the Franchise will be damaged and eventually might cease to exist. Hence, it is required for the Franchisor to stipulate all the measures to protect IPRs and other confidential information.
- Administration and Regulation: To ensure that the franchise operates smoothly, the Franchisee is required to take control over the management of the operations by himself or by assigning a personal supervisor for the day-to-day operations.
- Embargo on the suppliers: The negotiating power shall be divided between the Franchisor and Franchisee on mutual consensus basis for purchasing raw materials from the suppliers, since the quality of the raw material has a direct impact on the quality of the final product, and it is of paramount importance for the Franchisee to meet the established standard of the Franchisor’s business. The Franchisor may direct the Franchisee to purchase a product for a particular vendor, this is done to maintain uniformity amongst all the franchise outlets.
- Audits and Accounts: The Franchisee is required to provide reports as per the demand of the Franchisor, concerning the inventory and income. The Franchisee is also obligated to submit annual and periodic reports regarding the status of the progress of the outlet.
- Good Faith: The Franchisee is required to act in good faith in the capacity of a prudent man. The clause of good faith is omnibus in nature as it has a wide scope to include the actions of the Franchisee.
AMLEGALS REMARKS
As discussed earlier, Franchising model has proven to be one of the most profitable business models for worldwide expansion and development of businesses in this time of cut-throat competition between business due to the globalization rather than choosing to start your own operation from scratch.
However, it is a difficult task to keep the Franchise up float, since the goodwill of the Franchisee is dependent on the acts of the franchisee. Therefore, it is quintessential for the Franchisor and the Franchisee to comply with their duties and obligation for the success of the Franchise.
In the upcoming part, we attempt to discuss the Legal issues faced by the parties under Franchise Agreement and Safeguards required during the course of Franchise period in the upcoming part. Stay tuned!
For any query or feedback, please feel free to connect with arushi.vyas@amlegals.com or tanmay.banthia@amlegals.com
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