What Obligations Do Franchises & Franchisees Have to Each Other?


The legal obligations that a franchiser and franchisee have to each other are spelled out in the franchise agreement. For a business relationship to work, both sides need to understand their basic obligations to establishing a successful company. It is the skills, experience and determination that both the franchiser and franchisee bring to the table that help to make a franchise arrangement profitable.


The franchisee needs to get her financing arranged to meet the franchiser’s stated guidelines. The franchisee may be required to pay facility costs, licensing fees, marketing fees and initial staffing costs. The franchisee is then required to pay a royalty fee based on the revenue generated and could also be obliged to pay a grand opening advertising fee to the franchiser for promoting the new location, the Bureau of Consumer Protection website states. It is the obligation of the franchiser to let the franchisee know what costs she will be responsible for, and the franchisee is obliged to arrange financing in time to open up the new location.


A franchise grows based on the effectiveness of its marketing programs. The franchisee buys into a franchise agreement with the understanding that he will benefit from the many years of franchise marketing experience that the company has. It is the obligation of the franchiser to proactively pursue effective marketing programs, and it is the obligation of the franchisee to execute those programs and give feedback to the franchise company to help improve future marketing programs.


Each franchise company has a proprietary way of reporting income and keeping track of franchise financial information. The franchise company is required to offer administrative assistance to the franchisee, and the franchisee is obliged to maintain the recordkeeping and reporting standards of the company. The efficient flow of information between the franchiser and franchisee is what keeps the entire organization running smoothly.

Territory Development

Territory development in a franchise organization is the responsibility of both the franchiser and franchisee. The franchiser has the obligation of doing the necessary demographic research to ensure that there is a sufficient customer base to support a franchise in a geographic area. The franchisee needs to maximize the available customer base by getting involved in local marketing programs as well as engaging in good customer service practices that bring repeat customers back.