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Franchisors sometimes require prospective franchisees to sign one or more agreements before signing the franchise agreement itself. Also, the franchise agreement may take different forms depending on how the
Initial documents
Prospective franchisees may have to sign one or more of the following: a deposit agreement, a confidentiality agreement, or an ‘intent to proceed' agreement (also known as a franchise purchase agreement). Occasionally, some of these agreements may be combined into one document.
Deposit agreement
Prospective franchisees may be required to pay a deposit to the franchisor and sign a deposit agreement setting out the terms on which that deposit is paid and held by the franchisor.Deposit agreements should provide that the deposit will be credited to any initial franchise fee and for the deposit to be refunded if matters do not proceed.
Deposit agreements should provide that the deposit will be credited to any initial franchise fee and for the deposit to be refunded if matters do not proceed.
The British Franchise Association's Code of Ethics says that written details of any deposit must be given to prospective franchisees including details of what costs may be deducted by the franchisor and under what circumstances. The code also says that deposits must be refunded to prospective franchisees who do not become franchisees, or offset
Prospective franchisees must know the basis on which refunds will be made and should consider taking advice if the document does not entitle them to a refund, for example.
Confidentiality agreement
Franchisors will provide valuable commercial information about their business to prospective franchisees, but will need to protect and prevent their business falling into the hands of competitors.
Prospective franchisees should be aware that they may be required to keep the franchisor's information confidential indefinitely, depending on the terms of the agreement, which should also set out the circumstances where confidential information may be disclosed, for
Intent to proceed agreement
Such agreements are usually required where premises are needed to operate the
The franchise agreement
The franchise agreement may take different forms depending on whether the prospective franchisee is an individual, trading as a limited company or in partnership. In all
Prospective franchisees sometimes set up limited companies to run their franchise business to try and limit their liability, for example. If so, the
Where two or more individuals acquire a franchise together, they will do so in partnership with each other. If so, the parties to the franchise agreement will be the franchisor and all of the individual partners, who will be responsible individually and collectively for the partnership's liabilities. In these circumstances, the prospective franchisees should consider having a written partnership agreement between them dealing with how profits, losses and any liabilities of the business will be shared.