Franchising in Ukraine: how clear franchise agreement terms define business Success 

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In today's business landscape, adopting a franchise development strategy emerges as one of the most efficient and favored methods. By granting the rights to use their brand, technology, and business model, companies can swiftly and effectively broaden their market footprint. Nonetheless, the cornerstone of successful franchising hinges on a well-structured and explicitly defined agreement.

The absence of clear and essential terms in the agreement can lead to risks and disputes between the involved parties. Leveraging our expertise from over ten years in contract law, we grasp the nuances of this process thoroughly. Therefore, we are always prepared to tailor an agreement for our clients, aimed at mitigating risks and ensuring the transaction's success.

This article will cover the specific terms that should be considered in a franchise agreement and how to accurately incorporate all the requirements for conducting the business.

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Key Terms of a Franchise Agreement

The franchise agreement (commercial concession) serves as the primary legal document regulating the relationship between the franchisor and the franchisee in Ukraine. Let's examine the essential terms that should be included in a franchise agreement in Ukraine:

  • Subject of the Agreement: The terms of the agreement's subject must be clearly defined. This can include the rights and obligations of the franchisor and franchisee, as well as a description of the goods or services covered by the franchise.
  • Territory and Duration: The agreement should specify the territory covered by the franchise and the duration of the agreement. The territory can be defined geographically or by other parameters, and the duration can be fixed or indefinite.
  • Financial Terms: The agreement should reflect the financial aspects of the franchise, such as initial fees, royalties, marketing contributions, and any other financial obligations of the parties. These terms must be specified and clearly described.
  • Duties and Liability of the Parties: The agreement should define the responsibilities of each party, particularly regarding the supply of goods or services, franchisee support, marketing, training, etc. The liability of the parties in the event of a breach of agreement terms should also be agreed upon.
  • Intellectual Property Rights: The agreement should detail the terms for the use and protection of intellectual property rights, such as trademarks, logos, patents, copyrights, etc.
  • Marketing and Advertising: Terms related to marketing and advertising should be included in the agreement. These may involve conditions for sharing advertising campaign costs, approving advertising materials, participating in joint promotions, etc.

There are additional terms we recommend including in the franchising agreement to mitigate risks and unpleasant situations. Thus, additional terms that need to be reflected in the agreement:

  • Confidentiality and Non-Disclosure: The agreement should contain terms prohibiting the disclosure of confidential information, including know-how, business secrets, operational methods, etc.
  • Transfer or Sale of the Franchise: The agreement should consider the possibility of transferring or selling the franchise to a third party and set terms for such cases.
  • Development and Expansion: The agreement may contain terms for the possible expansion of the franchisee's business, including the right to open new branches or expand the territory.
  • Dispute Resolution: The agreement should establish terms for resolving potential disputes, including the use of alternative dispute resolution mechanisms, such as mediation or arbitration.

It's important to remember that the franchise agreement must be carefully crafted, taking into account the requirements of the law and the specifics of the particular business. Each agreement should be individualized and meet the needs of both parties, ensuring the protection of their rights and interests.

How to Accurately Reflect All Business Operation Requirements for a Franchise in the Agreement

When concluding a franchise agreement and detailing all the requirements for running the business, it's important to follow several key steps.

1.       Establish Clear Communication with the Franchisor: First and foremost, ensure open and transparent communication with the franchisor. Discuss all requirements, expectations, and conditions of the business before signing the agreement. Make sure you fully understand the franchise model and the associated rules.

2.      Thorough Analysis of the Agreement: Before finalizing the franchise agreement, carefully analyze all the requirements and conditions that need to be reflected in the agreement. This includes the essential terms we discussed earlier, as well as any additional requirements related to the specific franchise business.

3.      Clear Wording: All requirements, rules, and conditions should be articulated clearly and understandably. Use specific terminology and avoid ambiguity. If necessary, include definitions of key terms and concepts in the agreement.

4.      Inclusion of All Relevant Clauses: Ensure that the agreement includes all necessary clauses related to operating the franchise business. These could be terms regarding the supply of goods or services, marketing and advertising, financial obligations, intellectual property rights, confidentiality, business development and expansion, dispute resolution, and others.

5.      Transparency and Equality: The agreement should ensure transparency and equality between the franchisor and franchisee. All terms should be fair and beneficial for both parties.

Accurately reflecting all requirements for operating a franchise business in Ukraine is key to a successful and secure franchising business. Take sufficient time for thorough analysis, consultations, and clear articulation of terms to ensure mutually beneficial and stable relationships between the franchisor and franchisee.

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Legal Support for Launching and Operating a Franchise

If you've chosen franchising as your pathway into business, turn to us, and we will:

  • Examine all aspects of the franchise agreement and provide a clear expert opinion.
  • Prepare a detailed risk assessment report and suggest strategies for their minimization under Ukrainian law.
  • Implement necessary changes and additions to the agreement, and develop the required documents.
  • Create a customized franchise agreement for you.
  • Offer consultation regarding the franchise and its application possibilities.
  • Accompany the signing of the agreement.
  • Conduct negotiations with partners and provide comprehensive legal support at all stages of the agreement's conclusion.
  • Protect your interests in dealings with counterparties and ensure their reliable protection in court.
  • Take on all legal and administrative concerns associated with obtaining and using a franchise from abroad.

With us, you can be confident that your business will receive not only legal protection but also the best conditions for stable and successful development.

Learn more about legal support for franchising here.

Publication date: 29/01/2024

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