Franchise agreement review checklist
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Franchise agreements run for years and require a large upfront investment from the franchisee, so when something goes wrong the damage is proportionately larger. What matters is not only the signed contract but what was said before signing: recruitment materials, projected revenue figures and the explanations given by headquarters staff.
Independence and brand control have to coexist
Headquarters supplies the brand, know-how, trademark and training; the franchisee invests its own capital and runs the store under headquarters' business model. The two remain legally independent, yet customers see one brand. For certain retail and restaurant chains, disclosure and explanation obligations under the Act on Special Measures Concerning Promotion of Business Activities of Small and Medium Sized Retail Business (中小小売商業振興法) also come into play. This tension runs through most of the clauses that matter: headquarters cannot dictate everything, but a franchisee operating however it likes damages the whole brand.
Where disputes actually start
Franchisees often say they were told to expect a certain sales level, or understood no other branch would open nearby. Whether the recruitment materials, revenue model and interview notes match the eventual contract terms is frequently the real issue, together with whether termination fees or penalties are unreasonably unclear or one-sided under the Antimonopoly Act.
Money, territory and support need specifics
Franchise fees, royalties and advertising contributions should specify the calculation method, any minimum royalty, and whether fees are refundable. Whether the franchisee gets an exclusive territory, whether headquarters or other franchisees can open nearby, and how online sales are treated will shape the franchisee's business plan considerably, and if there is no exclusive territory, that should be disclosed clearly rather than left implicit. "Necessary support" as a headquarters obligation should be broken down by item, such as pre-opening training, store design and supervisor visits, with a stated frequency. Supply terms, advertising-fund use and post-termination restrictions on competition, trademark use and customer data should all be bounded by scope, term and territory.