Franchise Restrictions

The franchise agreement must also contain sufficient activity restrictions, so that later on, another franchise entrepreneur is prohibited from conducting his business in a manner injurious to the value and success of yours, and vice versa. When you think of the "cannot-do" rules from this perspective, they make more sense.

The franchise agreement may contain additions or restrictions that do not seem relevant. The first type relates to MYP or to the franchise company itself. Clauses which address future planning strategies and ideas and second type of clauses designed to protect the future rights of a company, like alternate channel distribution of products or services.

The franchise agreement can contain clauses that restrict your ability to sell your business. These requirements will affect whatever exit strategy you may have in place, so review carefully. The most common of these provisions explains that the person you sell your business to must meet the same requirements as all other franchisees that entered the system/network at that time. Another provision might require you to offer the franchise company a first right of refusal to purchase your business on the same terms and conditions you reach with a third party buyer. There are also usually some transfer fees you will have to pay the franchisor. You should carefully examine any clauses associated with leaving the system so you are aware in advance of the rules you will have to follow in that event.


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