As a potential aspiring businessman, one may enter into a franchise agreement for reasons such as being able to acquire the trade’s know -how which they are keen on, receiving the training and goodwill of an established enterprise with a consistent customer base and making profit as soon as starting business.
While there are great advantages that come along with buying a franchise there are also potential pitfalls that could befall a potential franchise buyer.
For instance, since a franchise agreement is a contract it usually lasts for a certain time period which unless upheld by the franchisee buyer, it could lead to the payment of damages to the owner of the franchise.
These damages could equal the total amount of fees which would have fallen due upon the natural termination or expiration of the agreement.
Similarly the contract may include hefty damage clauses which could cripple financially the franchise – buyer causing him unnecessary problems before he even finds himself doing business and interfere with his right to conduct business as he pleases currently or in the future.
It also contains multiple obligations that should be primarily be performed by the franchise buyer and the individual owning the franchise. Some franchise agreements contain an insane amount of obligations on the part of the franchise buyer compare to those of the owner’s.
While there are almost always restriction of trade clauses in a franchise agreement during its life, there may also be such clauses post termination of the agreement, which could bar the franchise buyer from setting up his own business under the excuse that the buyer could take advantage of the owner’s trading secrets to build his own.
The above consequences should be carefully considered before entering into a franchisee agreement unless the franchise buyer is ready to abide by these obligations and does not think he could survive on his own in the world of business.
