Franchise Agreements & Contract Law Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Franchise Agreements & Contract Law flashcards as text
In a franchise agreement, what does the 'grant clause' primarily establish?
Answer: The franchisee's right to operate using the franchisor's system and marks
The grant clause establishes the franchisee's right to use the franchisor's trademarks, system, and methods to operate the franchise business.
Which federal regulation requires franchisors to provide a Franchise Disclosure Document (FDD) to prospective franchisees?
Answer: The FTC Franchise Rule
The FTC Franchise Rule mandates that franchisors provide an FDD to prospective franchisees at least 14 calendar days before any agreement is signed or money is paid.
What is the primary purpose of a 'non-compete' clause in a franchise agreement?
Answer: To restrict the franchisee from operating similar businesses during and after the franchise term
Non-compete clauses protect the franchisor's system by prohibiting the franchisee from operating similar businesses both during the franchise term and for a specified period after termination.
What does 'in-term' non-compete refer to in a franchise agreement?
Answer: A restriction on competitive activity that applies during the active franchise relationship
An in-term non-compete restricts the franchisee from engaging in competitive business activities while the franchise agreement is currently in effect.
What is the primary purpose of a 'transfer fee' in a franchise agreement?
Answer: To cover the franchisor's administrative costs in reviewing and approving a franchise transfer
Transfer fees compensate the franchisor for the administrative costs involved in reviewing, approving, and processing the transfer of a franchise to a new owner.
Which type of franchise agreement grants a franchisee the right to develop multiple franchise units within a defined territory over a set period?
Answer: Area development agreement
An area development agreement grants a franchisee the right to open and operate multiple units within a specified territory according to a predetermined development schedule.
What does 'right of first refusal' mean in the context of a franchise agreement?
Answer: The franchisor's right to purchase the franchise before the franchisee can sell it to a third party
Right of first refusal gives the franchisor the option to purchase the franchise unit under the same terms offered by a prospective buyer before the franchisee can complete a sale to a third party.