Franchise agreement: important clauses to decide

Franchise agreement: important clauses to decide 

Franchise agreement is a reciprocal contract which Thai law does not describe the form specifically. The parties have their rights to apply the terms and conditions under the general practice of juristic and contract in the agreement such as parties’ liability, terms, and termination of the agreement.

However, franchise agreement has its characteristics that are different from other general agreements which have to be essential specified.

Since franchise business has no specific law, but the form of the agreement is considered the franchise owner (or franchisor) authorizes the franchise buyer (or franchisee) to use the franchise’s logo, brand or trademark. Therefore, the franchise agreement must comply with the provisions of the Trademark Act regarding the use of trademarks as well. Trademark Act require this type of contract must be made in writing and registered with the Registrar of Department of Intellectual Property and must include the following items in the agreement:

(1) Quality control in products and services

(2) Products and services that are permitted to use trademarks

(3) Type of permission and rights (exclusive, non-exclusive, or sole).

In addition to clauses (1)-(3) as prescribed by law, franchise agreement should include the following clauses.

(4) Licensing fees and considerations such as licensing fee and royalty fee. The fee is popularly collected on a monthly basis with the set rate in percentage (approximately 5-10%) from the total income of the franchisee each month.

(5) Sales control system. In order to collect the Royalty fee from clause (4) effectively and prevent corruption from franchisee employees.

(6) Non-disclosure of trade secrets.

(7) non-competition clause after the agreement expires or terminated.

Franchisor should have a clear business plan in order to define and include a detailed business plan in the franchise agreement. Agreement will be completed and more effective to the business needs.

In practice, lawyers may suggest their client to enter into a trademark licensing agreement with clauses (1) to (3) separately from franchise agreement as a subcontract. Trademark licensing agreement has to be registered at the Department of Intellectual Property (as required by law) for protection. This also can prevent disclosure of other important contents of the franchise business which the client may want to keep it to be secret. This process could be a time saver for clients as the trademark registrar uses less time to examine the agreement since they don’t have to check the entire agreement which some details are not under their responsibility.

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