As there is no legal definition of Franchise, several legal opinions have been outlined on this issue. Accordingly, it has been defined that a Franchise Agreement is a contract by which a person (Franchisor) grants another one (Franchisee) the right to reproduce, under the trade emblem of the Franchiser and its Distinctive Signs, with its continuous assistance, the business model previously developed and tested by the Franchiser and, due to the comparative advantage that this brings, allow a Franchisee to perform and carry out beneficial businesses.
Agreements that are normally drafted within the legal figure of the Franchise, include the following essential elements:
– Trademark License: The Franchisor authorizes the Franchisee to use its trademarks and other Distinctive Signs.
– Transfer of Know-How: The Franchisor is compelled to teach and train the Franchisee in the acquisition of knowledge of its business model, techniques and methods that must be applied in the carrying out of the business.
– Distribution: In the models in which the Franchisee can sell products supplied by the Franchisor, it is necessary to introduce elements of a distribution agreement. This does not affect the contractual nature of the Franchise Agreement neither implies the selling of goods.
– Initial fee and royalties: It is necessary to pay an admission fee for the Franchise and a regular sum that is normally established over the basis of a percentage of the sales of the Franchise. This provision is paid by the Franchisee to the Franchiser.
– Exclusiveness: It is usual although not compulsory, to establish a territory in which the Franchisee will develop the business in an exclusive manner.
– Confidentiality: Usually the Franchisee is obliged not to reveal to third parties, even after the termination of the Agreement, the information obtained in the development of the contract if this constitutes a commercial secret.