Franchise agreements and purchase agreements: two contracts that shape how businesses grow and trade

A franchise agreement grants rights to operate under your brand system. A purchase agreement governs the sale of goods or assets. Both carry significant financial and legal weight — here is what each needs.

Franchise agreements and purchase agreements

Two very different transactions — one that replicates a business model, one that transfers ownership of goods or assets — each requires a carefully structured contract to protect the parties on both sides.

Franchise agreement

A franchise agreement grants the franchisee the right to operate a business using the franchisor’s brand, systems, know-how and trademarks in exchange for fees and compliance with brand standards.

Why franchising needs robust documentation

Franchising multiplies your brand across multiple locations operated by independent business owners. Each franchisee is a separate legal entity making their own daily decisions. A weak franchise agreement means inconsistent product quality, brand damage, fee disputes and — in the worst case — an ex-franchisee opening a near-identical competing operation the moment the agreement ends.

What a franchise agreement must contain

1. Grant of rights The specific territory where the franchisee can operate, whether the grant is exclusive or non-exclusive, and the term (typically 5–10 years with renewal options).

2. Licence to brand and IP The franchisee receives a limited, non-transferable licence to use the franchisor’s trademarks, logos, trade name and operating system. The franchisor retains full ownership.

3. Fees

Initial franchise fee: paid on signing for the right to enter the system.
Royalty fee: ongoing percentage of gross revenue (typically 4–12 %).
Marketing / brand fund contribution: pooled fund for national or regional advertising.
Technology fee: if the franchisee uses proprietary software or POS systems.

4. Standards and operating manual The franchisee must follow the operations manual (which is typically a living document incorporated by reference). The agreement should specify:

Approved suppliers and product specifications.
Required equipment and fit-out standards.
Staff training requirements.
Quality audit and mystery-shopping programme.

5. Renewal and transfer Conditions under which the franchisee can renew at the end of the term (meeting performance thresholds, paying a renewal fee, updating fit-out). Conditions for transferring the franchise to a buyer — the franchisor typically has approval rights and a right of first refusal.

6. Termination

Events allowing the franchisor to terminate immediately (insolvency, criminal conviction, breach of brand standards, failure to pay fees).
Events requiring a cure period before termination (other breaches).
Post-termination obligations: the franchisee must de-brand immediately, return all confidential materials, and honour the non-compete.

7. Non-compete During the term: the franchisee cannot operate a competing business. Post-term: a geographic and time-limited non-compete (typically 1–2 years within the former territory).

8. Disclosure In many jurisdictions (Australia, US, Canada, France), the franchisor must provide a disclosure document (FDD or equivalent) a minimum number of days before signing. Check national requirements.

Pre-contractual disclosure in the EU

The EU has no unified franchise disclosure law, but several member states (France, Belgium, Spain) require the franchisor to provide a pre-contractual disclosure document at least 20 days before signing.

Purchase agreement

A purchase agreement (also called a sale and purchase agreement or SPA) records the transfer of ownership of goods, assets or a business from a seller to a buyer in exchange for a price.

Types of purchase agreement

| Type | What transfers | |---|---| | Goods SPA | Physical inventory, equipment | | Asset purchase | Specific business assets (equipment, IP, customer contracts) | | Share purchase | All shares of a company (buying the entire legal entity) | | Real estate SPA | Land or buildings |

What a purchase agreement must contain

1. Identification of parties and subject matter Full description of what is being sold: serial numbers for equipment, title numbers for land, schedule of assets for business purchase.

2. Purchase price and payment

Fixed price or formula-based (e.g. enterprise value minus net debt).
Payment timing: deposit on signing, balance on completion, deferred payments or earn-outs.
Price adjustment mechanism: for working capital, inventory levels or financial metric targets at closing.

3. Representations and warranties The seller warrants the accuracy of key facts: they own the assets, there are no hidden liabilities, equipment is in working order, contracts are transferable. Breach triggers indemnity.

4. Conditions precedent Events that must happen before the deal closes: regulatory approval, third-party consents, financing, due diligence completion.

5. Risk and title At what point does ownership (and risk of loss or damage) pass from seller to buyer. For goods: typically on delivery. For shares: on completion.

6. Restrictions on seller Non-compete, non-solicitation of customers and employees for a defined period post-completion.

7. Dispute resolution Preferred mechanism for indemnity claims, price-adjustment disputes and warranty breaches.

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Related contract types: Franchise agreement · Purchase agreement

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