Contract Glossary

Franchise Agreement

Definition

A contract granting someone (the franchisee) the right to operate a business using another company's (the franchisor's) brand, systems, and intellectual property. In exchange, the franchisee pays fees and follows the franchisor's rules.

In Practice

Opening a McDonald's, a Subway, or an Anytime Fitness means signing a franchise agreement. You'll typically pay an upfront franchise fee ($10,000-$50,000+), ongoing royalties (4-8% of revenue), and marketing fund contributions. The franchisor controls everything from menu items to store layout. Read the Franchise Disclosure Document (FDD) cover to cover before signing.