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Checklist of Basic Franchise Agreement Terms

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Checklist of Basic Franchise Agreement Terms

1. Issues Pertaining to the Franchise Cost Terms

What does the initial franchise fee purchase?

Does it include an “opening” inventory of products and supplies?

Does the franchisor offer any financing, or offer help in finding financing?

Are there any deferred balances?

Is any part or all of the initial fee refundable?

Does the contract clearly distinguish between total cost and initial fee, initial cash required, or initial costs?

Are there periodic royalties?

If royalty payments are in whole or part payment for services by the franchisor, what services will be provided?

Are accounting/bookkeeping services included or available?

Is a specified amount of working capital required of the franchisee to cover operating costs until profits can be made?

Must premises be purchased or rented, and are there further conditions on either of these?

Does the franchisee have to make a down payment for construction and/or equipment?

2. Issues Pertaining to the Franchise Location Terms

Does the franchise apply to a specific geographical area?

Will other franchisees be permitted to compete in the same area, now or later?

Does the franchisee have a first refusal option as to any additional franchises in the original territory if it is not exclusive?

Does the franchisee have a contractual right to the franchisor's latest products or innovations?

Will the franchisee have the right to use his own property and/or buildings?

3. Issues Pertaining to the Buildings, Equipment and Supplies Terms

Are plans and specifications of the building determined by the franchisor?

Are there any restrictions on remodeling or redecorating?

Does the franchise agreement bind the franchisee to a minimum purchase quota?

Does the franchisor have a group insurance plan?

Does the franchisor require that it be named as an insured party in the franchisee liability coverage?

4. Issues Pertaining to the Operating Practices Terms

Must the franchisee participate personally in conducting the business?

If local advertising is left to the franchisee, does the franchisor exercise any control over such campaigns or share any costs?

Are sales or service quotas established?

Are operating hours and days set forth in the franchise contract?

Are there any limits as to what is or can be sold?

5. Issues Pertaining to Termination and Renewal Terms

Does the franchisor have absolute privilege of terminating the franchise agreement if certain conditions have not been met, either during the term or at the end?

Is there provision for independent appraisal?

Does the original agreement include a clause that the repurchase price paid by the franchisor should not exceed the original franchise fee?

Under what conditions can the franchisee terminate the franchise?

Is the franchisee restricted from engaging in a similar business after termination?

If there is a lease, does it coincide with the franchise term?

Does the contract provide sufficient time for amortization of capital payments?

Has the franchisor provided for return of trademarks, trade names, and other identification symbols and for the removal of all signs bearing the franchisor's name and trademarks?

6. Other Points To Consider

Can the franchisee sell the franchised business and assign the franchise agreement to the buyer?

Is the franchise assignable to heirs, or may it be sold by the franchisee's estate on death or disability?

Does the lease permit assignment to any permitted assignee of the franchisee?

Are all trademarks, trade names, or other marks fully identifiable and distinct, and are they clear of any possible interference or cancellation owing to any pending litigation?

Has the franchisor provided the franchisee with an offering document package meeting FTC rule requirements or the UFOC format?

Has the franchisor met all state law requirements (registration, escrow or bonding requirements, etc.), if applicable?

Are there state laws governing franchisor/franchisee relationships, including contract provisions, financing arrangements and terminations?

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What the Checklist Covers

The Checklist of Basic Franchise Agreement Terms is a concise reference that enumerates the core clauses and exhibits commonly found in franchise contracts. It highlights commercial, operational, and legal items—such as scope, territory, fees, term and renewal, intellectual property, support obligations, marketing, transfer and termination provisions, confidentiality, indemnities, dispute resolution, and insurance—so parties can confirm completeness, prioritize negotiation points, and prepare supporting exhibits before execution or legal review.

Why a Focused Checklist Matters

A focused checklist reduces oversight by flagging mandatory and negotiable provisions, streamlining counsel review and alignment between franchisor and franchisee. It shortens negotiation cycles, clarifies obligations, and supports consistent onboarding and compliance across multiple locations.

Why a Focused Checklist Matters

Who Typically Uses This Checklist

Professionals from franchisors, franchisees, and their legal or business advisors typically use this checklist during negotiation and contract setup.

  • Franchisor legal teams: verify uniform contract terms and required disclosures across territories.
  • Prospective franchisees: confirm fee obligations, support services, and territory exclusivity prior to signing.
  • Business advisors and lenders: assess operational commitments and financial covenants for underwriting decisions.

Use the checklist as a shared reference to align expectations and document any negotiated deviations for counsel review.

Core Sections to Include in the Checklist

Organize the checklist by topic so reviewers can quickly locate and assess legal, commercial, and operational items that regularly require negotiation or documentation.

Franchise Scope

Describe permitted business activities, exclusive or nonexclusive rights, product or service offerings, and any limitations on changes to the business model without franchisor approval. Include minimum performance standards.

Territory

Specify geographic boundaries, exclusive territory grants if any, performance-based territorial reductions, and procedures for overlapping or contested territories. Also state metrics for expanding or contracting the territory and dispute resolution steps.

Fees & Payments

List initial franchise fee, ongoing royalty rates, advertising contributions, late payment penalties, acceptable payment methods, and audit rights related to fee calculation, including timing and invoicing procedures.

Term & Renewal

State initial term length, renewal conditions, notice periods, automatic renewal clauses if any, and material conditions that permit termination or nonrenewal. Include cure periods and franchisor consent thresholds.

IP & Trademarks

Define licensed marks, permitted uses, quality control standards, trademark policing responsibilities, and post-termination obligations for mark use or transition. Specify branding guidelines, signage requirements, and approval processes for local marketing materials.

Dispute Resolution

Specify governing law, forum selection or mandatory arbitration clauses, venue for disputes, interim injunctive relief rights, and allocation of arbitration costs, and any class-action waivers or mediation prerequisites.

Step-by-Step: Completing the Checklist

Follow these sequential steps to populate the checklist, align internal reviewers, and secure signatures before document filing or execution.

  • 01
    Upload Document: Attach draft franchise agreement and exhibits.
  • 02
    Identify Parties: Enter legal names and TINs for all parties.
  • 03
    Mark Key Clauses: Tick required items and highlight negotiable points.
  • 04
    Review & Sign: Send to counsel and authorized signatories for approval.

Setting Up an Online Checklist Workflow

Configure online checklist fields and routing to match your franchise approval workflow and legal review steps.

Field Configuration
Routing Sequential approvals: franchisor counsel, operations, finance.
Authentication Email link plus SMS code option.
Field Types Checkboxes, text, date, dropdown for conditional logic.
Storage Save signed PDFs with audit trail in cloud.

Where to Send or File the Completed Checklist

Typical routing and filing options for the completed checklist depend on franchisor procedures and applicable state filing requirements.

  • To Franchisor: Upload to franchisor portal or send via secure email.
  • Counsel: Submit to franchise counsel for legal review and redlining.
  • Regulators: File any required disclosures with state regulatory agency where applicable.
  • Lenders: Provide lenders requested checklist copies and fee schedules for underwriting.

Digital Signing and eSubmission Requirements

Set authentication, document format, and integration requirements before e-submitting the checklist through your signing platform.

  • Formats: PDF, Word DOCX supported.
  • Integrations: Salesforce, NetSuite, Google Workspace.
  • Authentication: Email, SMS, KBA, or 2FA.

Essential Information to Include

Parties: Franchisor and franchisee legal names.
Effective Date: Enter as MM/DD/YYYY date.
Address: Street, city, state, ZIP.
TIN or EIN: Tax ID for payments and reporting.
Term Length: Initial term and renewal details.
Signatures: Names, titles, dates for each signer.

Common Preparation Mistakes to Avoid

  • Omitting jurisdiction-specific clauses can leave enforceability gaps and expose parties to unexpected duties or prohibitions under state law.
  • Using informal or inconsistent names for legal entities increases risk of misidentifying signatories and creates tax reporting or enforcement complications.
  • Failing to record fee formulas and calculation methods results in disputes over royalties, marketing funds, and audit adjustments.
  • Neglecting to attach required exhibits—IP licenses, operations manual, or training schedules—can render key provisions ambiguous or unenforceable.

Consequences of an Incorrect or Incomplete Checklist

Contract Invalidity: Material omissions risk unenforceable clauses.
Tax Penalties: Incorrect TINs may trigger IRC §6721 fines.
I-9 Violations: Incomplete employment forms incur DHS penalties.
Regulatory Fines: State disclosure failures may carry fines.
Franchisee Lawsuits: Ambiguous terms increase litigation risk.
Loss of IP Rights: Poor trademark controls risk dilution.

Key Timelines and Deadlines to Track

Track negotiation windows, notice periods, and any statutory filing or disclosure deadlines that affect franchise offer and execution.

Negotiation Window:

Allow at least 30 to 60 days for negotiation and counsel review.

Renewal Notice:

Provide written renewal notice 60 to 90 days before term expiration.

Termination Notice:

Observe contractual cure periods; typical notice ranges from 30 to 90 days.

Regulatory Filings:

Submit required state disclosures within specified statutory timeframes.

Document Retention:

Retain executed documents per regulatory and tax retention schedules.

Pricing and Core Capabilities Comparison

Side-by-side summary of vendor starting prices and core capabilities for checklist e-signature and compliance workflows. signNow has no envelope cap; DocuSign limits to 100 envelopes/user/year.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day free trial No No Yes, limited Yes, limited
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Frequently Asked Questions

Answers to frequent questions on completing, signing, and storing the Checklist of Basic Franchise Agreement Terms, including eSignature and compliance considerations.


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