Unlock the Power of Online Signature Licitness for Franchise Contract in India

How to eSign a document: online signature licitness for Franchise Contract in India

My handwriting is don't do **** This is an overview of the presentation today and we take some time at the end for questions. should you have any? Even the term franchising is unfamiliar to you as a lay person, you would certainly have heard of popular examples of franchises such as Mcdonald's 711 and the fitness franchise fforty-five indefinite market economy country is the sales of goods and services to franchising has grown by leaps and bounds in the last five decades by some estimates franchising contributes more than a third of all retail sales in terms of year's tolerance and the rapid growth and success of franchising has been attributed to a number of factors the most. Important one probably being the franchising combines the depth of knowledge and the strength of one entity the franchising with the entrepreneurial spirit of a businessman who's the franchisee. Franchising can extend to every industry possible whether it's hotels. or cartoon or even dentistry. At its most basic a franchise agreement is enrichment whereby one person the franchise or has developed a system of conducting a particular business allows another person to franchisee to use that system in ance with the stipulations of the franchising in exchange for certain conservation. There are there. three factors that can detach a franchise relationship. the first is a license to use the system in return to an agreed payment. The franchise fee is allowed to use the franchise system. There's an ongoing interactive relationship The relationship is ongoing in the sense that it involves multiple sales of the franchise product over a period of time with the franchise of getting assistance from time to time to the franchisee to establish and maintain or to promote the franchise unit and finally you have the franchising right to prescribe the manner of operating the business. These directions may include for example, quality control protection of the system territory restrictions, operational details and a host of other regulations that the conduct of the franchisee in relation to the franchise. Let's go with an example of a fictional franchise entity. The company is called Ato Inc a restaurant that sells specialist Japanese food. What the unique attributes of Alibaba is, of course it's trademark. the name a and the the franchise to operate restaurants but more than that there is a system for preparing and selling the food, which are sold probably in large volume and in a uniform manner, There are therefore a number of other aspects that go into producing a product or consistent quality these. A good cycling or location for the restaurant, the design of the employee's uniforms the design of the packaging sourcing qualities sources for the supplies. and that we have ingredients and management and accounting systems. There may be different types of franchises for the purpose of this presentation we will be dealing with one broad category, which is called the business formats and that is characterized by an ongoing business relationship between the franchise and the franchisee that includes not just the product service or trademark with the entire business format itself, two or three types of a business format franchise. The first is a processing franchise. in this franchise. is supplying an essential ingredient to technical knowledge to a processor or manufacturer and the franchise of grant. Franchise the authorization to manufacture and sell products under the marks of the franchising in the second example, a distribution franchise. the franchising manufactures and sells the product of the franchisees and the franchisees are then selling the products to the customers and under the franchisees trademark, but in their own geographic areas it a third example a service franchise the franchise will go a certain service, which is to be rendered by the franchisee, but in ance with the terms of the franchise agreement to the end customers. So I want to make a franchising program in a number of ways making the choice between the various possible structures depends very much on the particular facts and circumstances that exist in relation to the franchising and the potential franchisees, But there are two broad examples of this unit franchising and territorial franchising. The most straight forward would be to create a franchise is in franchising. Typically, this arises only domestic situations that is where the franchise and the franchisees are in the same country and it allows the franchise to replicate his business as efficiently as possible without having to establish new structures such as subsidies or joint ventures. Franchise is required to be established outside the borders one country. which is what the thing. 2021 is all about you would need a different type of franchise agreement. This is the territorial franchise agreement that can cover a substantial territory autograph area by setting up simultaneously or successfully a number of different units, shops or outlets over a great period of time there are generally two forms of setting up territorial franchises, which is the franchise biblical agreement and the master. Agreement There's also a combined structures agreement which we will get into in your course. in this type of agreement, there's a direct link between the franchises or and franchisee the latter being expected to open and operate several units This franchise will therefore include a development agreement where the franchise is required to develop the area of establishing a number of units outlets, which you can usually own directly In this case, it's important to note that the franchisee will not saran of the third parties. Then they come to the master franchise agreement probably the most common form of international franchising in this the franchising grants another party usually called the master franchisee Certain rights, which may be exclusive for geographical area. The master franchisee is given the right type of franchising to grant for franchises to the parties, which are usually called subs to exploit fully the potential business opportunities in the larger geographic area. A franchise agreement in the city based on a combination of the structures discussed in the previous two slides it may, for example by a master franchise and a number of independent of franchisees will be established with a franchise developer agreement under which the same master franchise or one of the franchisees is additionally committed to open a number of his own units in the same territory, Master franchise could also therefore be mandated to conclude franchise agreements with one or more of the independent franchisees under the master franchise agreement. We will spend the second part of the presentation in analyzing some of the essential closes within a franchise agreement that may be relevant to note that this is not to be considered as legal advice and and specific legal advice should always be taken. We're required to understand the objects and purposes of the franchise agreement and to determine whether it's appropriate or balanced the typical provisions of the franchise agreement are essentially the rights and obligations of the franchising second. It's an obligation to the franchisee and some of the miscellaneous provisions that he would see in contracts of the strike let's get into those right away. the obligations of the franchise or to the franchisee can be divided into two broad areas. The first of course is the obligation to license intellectual property rights and other relevant rights that are associated with the system to allow the franchisee to use the franchise system. The second is really the obligation to communicate the fascial system to the franchisee to allow the grant of the franchise. To actually have practical effect in other words, the franchising needs not just to grant a right to use the franchise system, but also explain how that system works. The obligation to grant an intellectual property license is at the heart of the franchise agreement without this license the franchise system using its trademarks trade name trades. Industrial designs inventions copyrights or trade secrets the franchise system wouldn't work the franchising is required to identify the various intellectual property rights associated with the system and the manner of their use by the franchisee in the contract. the second and Important obligation of the franchising is in relation to the administrative procedures that are required in the country in which the trademarks are going to be used This is because intellectual property rights established and maintained in ance with national laws of countries The agreement should specify very clearly who's obligation it is to take care of or to follow up on these administrative procedures in order to properly register and defend the marks. The franchise has no obligations in terms of communicating the franchise system to the franchisee. There are four broad obligations. The first of course is the provision of the operating man in the case of the Japanese restaurant, aga the operating manual would probably contain information on site selection to the unit, employee recruitment and training accounting supply and stock control Recipes Sales routines etcetera the second broad obligation is assistance in relation to selecting or approving the unit. Actual opening in in that particular country, the third would be the continued support that may be required in terms of continuous improvement to the system, including the local modifications that may be required to take it into account local market conditions. and cultural differences The last obligation of the franchise or is in relation to training. and this is quite important because the Fraser would need to provide training to the employees of the franchisee in order to operate the franchise system successfully. Straining can be divided into market trading processing training and repair and general business training. The first of these obligations is the obligation of complying with the schedule. in the case of the franchises and sometimes also in the case. Master franchises Our schedule is a very important feature as it specifies the number of units shops around the outlets, which have to be opened as well as the agreed time frame within which this must must must be compliance with this is extremely important because not only the income of both parties to the franchise agreement depend on the timely opening of the franchise units, but also depend on how quickly. New customers are required and the extent of market share in that country the second most important obligation is a cost to payment of fees. The franchise agreement should specify all types of payments to be made by the franchisee franchises, or including any initial payment, which is sometimes called an entrance fee for granting the franchise ongoing royalty payments payments for advertising and promotion that is undertaken by the franchises or security deposits or any other types of payments, Most specialized fees may sometimes be required for a second. Of franchisees that are unique to a particular type of franchise system. The third obligation of of the franchisee is the obligation of compliance with quality control requirements. The franchise is control of the man and the franchisee operates the franchise system is quite important to ensure operations are properly carried out and that the intellectual property rights that are by the franchising are predicted adequately sustain the reputation and and goodwill of the distinctive signs and and trade dress isn't the interest of both parties while it's clear that the Fraser must impose quality control the requirements and the franchisee to protect both party's interests in the system should also. Be taken to ensure that requirements do not violate for example, national competition laws, which is probably a separate topic. the last and final obligation of the franchisee is the obligation in relation to confidentiality and this extends from everything from the trade secrets of the franchise or the other the skills to the franchisee, as well as any other information that maybe the that is disclosed under the agreement any franchise. I would have spent a great deal of time initiate in the franchise system and this is contained to a large extent of the operating manual. Therefore, it is essential to the maintenance of the trade secrets of the franchise or that the operating manual and other information of confidential nature are indeed kept in confidence. having dealt with the obligations of the franchises or and the obligations of the franchisee. There are a number of other miscellaneous provisions in a typical franchise agreement that are probably more unique to such arrangements than other commercial agreements. Let's get into each one of these. Detail in the following slides. Excuse me is a very important concept in the context of franchise agreements, a franchisee may decide as to whether a franchise is limited by some fashion to a specific geographical area or for a specific period of time to run the franchise arrangement This is to protect the franchising from a situation where the franchisee has complete control in relation to the franchise operating in that particular jurisdiction different degrees and sorts of explicitly may also be considered for the purpose of franchising. for example, French. I recorded exclusively to sell certain goods or provide services to the general public, but the franchise of have reserved for himself or for other franchisees the seal to certain specific types of customers such as hospitals or armed forces establishments. The parties to a franchise agreement normally decide to set a certain period on the agreement, subject to premature termination on the occurrence of certain activities The term should both be long enough for both parties to write some benefit from the agreement if it is not reviewed mainly owing to the very high investment of time in terms of training and the starting cost of franchise unit in particular, the franchise is required to make a significant investment such as in land buildings, assets and inventory. This justifies giving the franchise agreement a longer term than usual, but at the same time, the term should still be short enough for the parties to the other. Within a period of time should the arrangement not work out for any reason. As with any other commercial arrangement, there should be flexibility provided in the document to terminate the relationship if one of both parties are dissatisfied with the agreement, this could be broken into two different scenarios, the first being a breach of the agreement by the franchises or or the second is situations where there is a breach of the agreement by the franchisee at the same time in order to protect his interest in the franchise system, as well as his interest in ensuring steady income the franchising will probably wish to secure the right to terminate the franchise upon the occurrence of certain events, which will be called. Breaches the first one would be the failure of the franchisee to operate the franchise properly, for example if the franchise is not meeting a certain sales quota or target that has been agreed or if the franchising order to become insult or if the franchisee was to breach a confidentiality requirement or would be under reporting royalties or failing to pay them when they are due all of these will be circumstances under which. would typically have a right to terminate the contract if a breach of the. Does occur and it is possible to correct it. The franchisee should be given an opportunity to do so failure to correct the material breach within the remedy period. That's provided would usually result in determination of the contract after the spirit is completed. if the franchise or breaches an essential provisions of the agreement, the franchisee should generally have the option of terminating the agreement and claiming redress. the definition of material breach usually relates to one of the few things the first being the franchises trademark being invalidated by. Reason because the license to use the trademark is a very important part of the franchise system, the second would be a supply of substandard products by the franchise out of the franchisee where high quality products are essential to the franchises operation. This would be considered a material breach the third would be a failure to fulfill any promises and and such promises are usually given a breach period or a remedy period, for example, 30 days for the franchise or to remedy the situation in which the. Can terminate the agreement? Domination usually occurs when the term of franchise agreement comes to an end and the agreement is not renewed or if the agreement is terminated before it's normal exploration because material breach has been committed by either the franchises or the franchisee the can also be terminated prior to expiring by mutual consent between the bodies. upon the occurrence of any kind of determination. A very important consideration is what the rights and obligations of the parties upon such domination upon termination of the agreement, the former franchise is no longer entitled to use intellectual property rights that were licensed to the franchisee. This has been. The rights that I've been granted to or registered by the franchise or or for a limited period of time that come to an end along with determination of agreement at the same time if they were amounts that were due the franchising must be where the moneys that are paid by him for advertising and promotion of the markets and trademarks in the trades used in the tertiary. me. those obligations will also and along with the termination of the franchise agreement. the main reason for tuning in the franchise agreement a post termination restriction is because the Franchises of having to the franchisee how to operate a successful business in a different territory does not want the franchisee to then compete with the franchises or using the same system or elements of the franchise system. What is also relevant is inclusive franchises are to be left in a position to offer something to new franchisees or may wish to step in and take over the franchise for that territory such non complete restrictions, however, have certain limitations the first limitation is the question of the length of time for. Size of the geographical area in which a form of franchising can be precluded from competing it should generally match the market area in the franchise in operated another restriction we will have to be assessed for its reasonableness is that relating to the type of business that the former franchise is precluded from operating for example, a restaurant franchisee could be restricted from operating the same type of restaurant in the same venue after the franchise is terminated, however, such restrictions will probably not apply if that restaurant owner were to open up a different concept restaurant or one in a different location. It is is typical for agreements to have provisions in relation to the transfer of the agreement. These will occur typically into different cases, The first is a sale by the franchisee it would seem that the franchisee had developed a successful franchise and wishes to sell it to a willing buyer at a price that includes a profit himself that he would ordinarily have the right to do so, however, usually the franchise or consent is required prior to the sale and in certain cases the franchise or may also charge a fee in order to provide such consent in the case of. By the franchisee when the franchisee, if a person dies and the ownership of the franchise passes to his heirs if you can establish that the heirs are incapable of operating the business properly in the same manner as the original agreement required, then the franchises or should have the right to repurchase the franchise at a fair market price. The next miscellaneous provision is in relation to the renewal of the agreement on the expiry of the term, the question of renewing the franchise on terms that will be favorable bodies thus presents it. If the franchise is successful, he would like to continue the arrangement and exactly the original conditions including payment terms at the same time if the franchisee is more than successful the franchise or may want to benefit from that increase in value by raising the commercial benefit that arises to the Frans or under the original agreement the Fraser would therefore usually grant a renewal on the same terms as being offered to new franchisees. but with every renewing franchisee the franchise. May not be required to be another initial fee on renewal because the Fraser would not have to incur the investigation and training costs all over again. Let's summarize once again essential of franchising and why it makes sense to franchise going back to the example of a Japanese concept restaurant Arika ink if a Ricardo would like to expand its business to other geographical areas in other countries it has two options one it is to open new restaurants itself, but in this case there are two disadvantages the company will be required to raise the necessary for a expansion itself. It will also be required to understand and appreciate the local cultural differences in business practices and customer preferences. In each market on the other hand, if I were to consider franchising this would present certain benefits in the sense that it would not have to raise capital for the construction of new restaurants. The franchising can obtain new markets for the distribution of its goods and services in this case, Japanese with minimal capital expenditure at the same time, Arika would not have to raise capital to finance the recruitment of staff to operate any restaurants as well as to manage a large corporation that. Would be necessitated by such expansion since most international markets present a number of difficulties such as different local business practices and customer preferences The franchising gains from the local knowledge and and the knowledge of local customer preferences that the franchisee would have there are benefits for the franchisee as well upon entering such an agreement, the franchisee acquires the expertise of the franchises or in the manufacturer of such goods of the provisions of these services. without having to. Learn this by itself the franchise he can also on the basis of the franchise system set up outlets with a greater chance of success than if it had to do it alone. Before a franchise owner, a franchisee enters into a franchise agreement, there are certain other documents that are circulated and signed the first of these is confidentiality agreement or an NDA. This is typically to protect the confidential information that is usually passing from the franchise or to the franchisee. The second is an application form or a questionnaire that seeks information. from the franchisee to the franchise or the third is usually an information document about the franchising. How successful it. In would be unique about the franchise opportunity and in what circumstances with the franchise be provided to potential franchisees with as with all of these documents, a lot depends on whether this is fit for your particular context and the particular situation in which you find yourselves as a franchising. As did everything to keep in mind that every single legal arrangement that you enter into it would be best advised to consult with a legal professional in the jurisdiction in which you want to enter into such an agreement. I hope you found this presentation beneficial. I've certainly enjoyed presenting we'll have a short question and answer session now if you have any questions, please feel free to type out the questions and I'll try to answer them as much as possible The next few slides will give you a bit of a background about Collier law. our mission statement our practice areas. Our industry sectors and some of the experience of the team in the recent past. Alright everyone so we can now proceed with the Q and a portion of our session Our speaker Mister Hawk is here with us so if you have any questions, let me know type in those in the Q and a tab at the right side of your screen beside the posts so I can see some people already typed in their questions. so if you're ready, mister Hackett do we start with the first question here. Yeah, sure we can start with the first one I think the first one is in relation to. let me just try and find it. It's about termination. What are the typical provisions that that that followed the termination for franchise contract and so I think I can see you, you know you're looking at it from two perspectives from the franchises perspective and and then you have to look at different franchisees specifically what the obligations that are applicable to. For the former, you know the franchise, or or it's primarily interested in ensuring that his intellectual property, which has been licensed to the franchisee in connection with the franchise agreement is not continued to be used. This is of course, very important because a nation of the contractor franchise or we want to you know either seize operations of that franchise. in that jurisdiction, it may want to grant that franchise contract to someone else you know, maybe to a. Of the franchisee and therefore, it's very important that. the trademarks that are associated with that franchise. are you know are getting back? You know are destroyed if they're going to be destroyed if if there's a contractual obligation to not continue to use those trademarks. so that's going to be one of the key ones from the franchises perspective, the second big one from the franchises perspective is is of course to receive any payments that are due until such point of time that the contract is done. It and and these are essentially. payments that are under the franchise contract. That's a royalties or service fees. for for for really compensating the franchise or for having invested you know time in training time in sort of. Basically teaching thee how to run the franchise in that jurisdiction from the franchises point of view, I suppose it's primarily interested in both termination restraints The typical post termination restraints are non compete or non solicitation and and that would essentially prevent the franchisee from. trying to do a similar business. You know to that of the franchise concept on its own, or maybe some. In combination with another Fraser, who's a competitor. of the of the initial franchise or so that then that's probably the main concern of the franchisee to try and prevent that. that's the first question great. So the next question was here. What are the types of continuing support that the franchise should provide to the franchisee at the beginning of the franchising arrangement? Yeah so at the beginning of the franchise arrangement, it's really important that the franchisee is is really able to have the right training and the right resources. to really understand how to properly undertake the franchise system in his territory and and this can be of course you know imported in several ways we've talked about the operating matter The operating manual is a really important part of the franchise system because it sets out you know the. That are to be followed the procedures that are required to be maintained to really make the franchise concept work. So I mean there's this little anecdote about how you know. the the I forget, the fast-food chain it was, but it is one of the fast food chains where the operating manual actually specifies that if a customer were to drop his drink or to drop his trade on the ground. everyone, I mean everyone who's who's a staff member should simply say sorry that. Here's your dog again or you know. here's your drink that you drop. it's basically without any questions replace that drink or that or that burger immediately free of charge and it's really important because you know that sort of sets the culture it sort of sets the you know the look and feel of the place and a large part of the success of the franchise is really based on of that that consuming experience right and and and the look and feel of that experience and and you must put that down in a very clear and understandable manner in the operating manner. Other obligations of the franchises, or would be do to really gauge and you know after having tested the market to really gauge the consumer sentiment to see is the franchise working you know in in its original form, give you another good example of this is you know if you look at a large global franchise or like McDonald's. they actually fundamentally modified their approach in India taking into account, you know, I think two aspects, it's one large part of the country doesn't have beef and. Another large part of the country, so you know very focused on certain types of Indian food and Indian spices, so they have they have actually suitable modified the menu in McDonald's in India, which is not just a fast food French fries. It's a it's a it's a family experience. That's how they they've marketed as well. so they've they've they've understood that the local market is different and they have managed to make those tweaks to the to effectively in the business model I would say but largely to the operating manual manual and and in terms of. You know the look and feel of the franchise concept to take into account the local taste you know local customer preferences sometimes it's business practices that are different so if you if you include all of these and and and and the franchise, I was really able to feel the faults of of the local market for the franchise concept. I think the franchise is going to be a lot more successful. than simply trying to import the original. Lock stock and barrel without making the necessary modifications for the local market. perfect. so I guess that's it for the Q and a part of our session. Thank you very much everyone for your time and thank you very much for our speaker mister hockey for the wonderful and very informative information you have given us so bye everyone see you in the next session.