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LiudmylaSupynska/iStock/Getty Images. In its broadest sense, a franchise agreement is a legally binding contract between a franchise organization and a franchisee. The agreement specifies the rights and obligations of each party, as well as what activities are prohibited.
A franchise agreement is an agreement (written, verbal or implied) under which: 1  one party (the franchisor) grants another party (the franchisee) the right to carry on a business supplying goods or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor.