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After weeks, months or even years of research, many franchisees are ecstatic to sign their franchise agreement and get into business. It’s an exciting time, but it’s important that you don’t get swept away by the excitement before taking an objective look at the commitment you’re about to make. Understanding exactly what you’re agreeing to will make the process smoother for everyone involved and will certainly be helpful in your search for long-lasting entrepreneurial success. Here are some legal considerations you should pay attention to when analyzing your franchise agreement.<h3>Intellectual Property</h3>Intellectual property (IP) is at the heart of a franchise agreement. For a franchisee to get the benefits of the franchise model, they must adopt the franchisor’s intellectual property — operational procedures, marketing strategies, slogans, logos and other branding.Both the franchisor and the franchisee need to have a clear understanding of how and when the IP can be used, as well as what is and isn’t off limits. Giving clear expectations for how a brand’s logo should or shouldn’t be used, for example, helps to maintain consistency throughout the system and ensures the brand is not misrepresented.By explicitly outlining what is and isn’t acceptable in the franchise agreement, franchisors can set their franchisees up for success and protect themselves from any sort of ambiguity defense should action need to be taken later on. Having these guidelines on paper also protects the franchisor’s IP if a franchisee decides to create an independent business.<h3>Territorial Rights</h3>Each franchise agreement should outline&nbsp;<a href="https://1851franchise.com/uncharted-territories-understanding-a-franchises-territorial-rights-2722948#stories">the rights a franchisee has within their territory</a>. While a franchise purchase inherently places the new owner within a given territory, that does not necessarily mean that they are the only business of their kind operating in the area.&nbsp;There are three primary types of territories: protected, exclusive and open. Depending on the model outlined in the franchise agreement, protections can range from a franchisee being the only owner allowed to operate that business in a given geographic area to the franchisor being allowed to open its own unit right across the street and cannibalize the business of the franchisee.<h3>Personal Guarantee</h3>Some franchisors require franchisees (and their spouses, when applicable) to sign personal guarantees. This means that, if franchisees don’t meet their financial obligations, their home, wages and other assets may be up for grabs if the franchisors choose to recover what they are owed.Not all franchisors require a personal guarantee, but many do, and creating an LLC does not entirely excuse franchisees from this responsibility.<h3>Non-Renewal or Transfer of Rights</h3>Franchise agreements come with a set time frame, and franchisees have certain obligations should they choose to 1) step away from the business before the end of the term or 2) choose not to renew the agreement at the end of the term.Again, all franchise agreements are unique. Some franchisors guarantee franchisees an opportunity to renew their agreement should they like, while others take more of a discretionary approach. Franchisees may also have an opportunity to transfer their franchise to another person (often a friend or family member), giving them the rights and responsibilities associated with the business.Even if you think that you will love the business and plan to renew your franchise agreement for as long as possible, it is important to be aware of these requirements and guidelines should circumstances change in the future.<h3>Disputes Between Franchisee and Franchisor</h3>Many franchisors have little-to-no litigation to report. In other cases, like Subway’s,&nbsp;<a href="https://www.franchisetimes.com/franchise_legal/new-research-examines-wide-divide-in-franchise-lawsuits/article_d8a7b27e-af05-11ed-875b-9795dbfb2c53.html?utm_source=1851franchise.com&utm_medium=article&utm_campaign=important-legal-considerations-in-franchise-agreements-and-contracts-2725774" target="_blank" rel="nofollow">there are plenty of very public lawsuits</a>. This is another aspect of franchising that, ideally, you shouldn’t have to worry about; the franchisor fulfills its commitments, you fulfill yours and everything goes smoothly. But this isn’t always the case, and it’s important to know how a potential legal issue will be settled should it arise.Some franchisors require franchisees to go to court in the jurisdiction of their headquarters. Others will only solve disputes through arbitration. No matter the approach outlined in the franchise agreement, it is important that you understand and are comfortable with it.Investing in a franchise is a major decision, and it’s often recommended that prospective franchisees seek the help of their own legal counsel. An experienced franchise attorney can help you to understand the agreement as a whole and answer any questions you may have about key legal aspects. With this, you can approach the decision with full information and confidence.For more information on franchise legal issues, check out these related articles on 1851 Franchise:<ul><li><a href="https://1851franchise.com/the-key-legal-terms-you-need-to-know-in-franchising-2724717">The Key Legal Terms You Need to Know in Franchising</a></li><li><a href="https://1851franchise.com/what-are-the-legal-risks-of-owning-a-franchise-business-2723320">What Are the Legal Risks of Owning a Franchise Business?</a></li><li><a href="https://1851franchise.com/franchising-basics-what-is-a-franchise-agreement-2725476">Franchise Agreement: What You Need to Know</a></li><li><a href="https://1851franchise.com/chapter-16-maintaining-legal-and-ethical-standards-in-your-franchise-system-2722765">How to Sell a Franchise: Maintaining Legal and Ethical Standards in Your Franchise System</a></li><li><a href="https://1851franchise.com/what-franchisees-should-know-before-hiring-a-law-firm-2722821">What Franchisees Should Know Before Hiring a Law Firm</a></li><li><a href="https://1851franchise.com/what-is-a-franchise-lawyer-and-why-would-i-need-one-2725334">Franchise Lawyers: Navigating Legal Dynamics in Franchising</a></li></ul>

Legal Considerations in Franchise Agreements and Contracts

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Buying a franchise is a big commitment. Here are five of the most important things to understand when signing a legally binding contract or franchise agreement.

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