Franchise Agreement in Modern Business

A franchise agreement in modern business practice is considered one of the most relevant legal transactions.

Its essence lies in the fact that the franchisor grants the franchisee the right to use their brand, trademark, business model, and know-how (practical knowledge, skills, and experience necessary to perform tasks effectively in a technical or professional context) under specified conditions and for a fee.

Example of Franchise

A practical example of franchising is the company McDonald’s, one of the most successful international brands, which operates in Georgia based on a franchise agreement.

Benefits of Franchising for the Parties

Franchising represents a bilateral legal relationship based on the agreement of the parties:

• The franchisor (the original brand owner) grants the right to use their trademark, brand, and business model in the local market.

• The franchisee gains the opportunity to operate while adhering to standards, ensuring business efficiency and brand prestige.

Both parties benefit:

• The brand owner expands their influence and receives financial benefits;

• The franchisee uses an already established system, knowledge, and experience, which reduces risks.

Franchising in Georgia

In recent years, franchise agreements have become popular not only internationally but also nationally.

In Georgia, well-known companies operate under franchises, such as:
Coca-Cola, McDonald’s, Wendy’s, Dunkin’ Donuts, and others.

This clearly demonstrates the essence of franchising: globally recognized brands enter the local market following standardized rules.

Challenges of Franchising

At first glance, the relationship seems simple:

• The franchisor provides experience and the right to use the brand;

• The franchisee pays an initial fee and periodic payments (royalty).

But in reality:

• A franchise agreement is long-term and structurally complex;

• Disputes often arise because contract terms may be incorrectly formulated or one party may violate them.

 Therefore, a franchise agreement requires clear and detailed definition of all essential terms.

Preventing Problems in Franchise Agreements

To prevent problems in practice, it is necessary to:

1. Legal consultation – before concluding any agreement, consult a lawyer to clarify conditions and possible risks.

2. Precise definition of rights and obligations – determine whether the franchisee receives only the right to use the brand or the full system.

3. Financial conditions – clearly specify the initial fee, periodic payments, deadlines, and payment methods.

4. Term definition – it is essential to state how long the agreement is valid and under what conditions it may be extended or terminated.

5. Protection mechanisms – the agreement should include:

   • sanctions in case of violations;

   • obligations to protect the brand;

   • confidentiality of information;

   • competition limitation conditions.

 

Franchising, on one hand, is a powerful business agreement that benefits both parties at the national and international level, and on the other hand, it is a complex and structurally sophisticated arrangement.

 Therefore, it is essential to:

• Clearly define all essential terms;

• Obtain legal consultation.