ad-fund-agreement

# Advertising Fund Contribution Agreement

Drafts a franchise advertising fund agreement or addendum establishing contribution obligations, fund administration, and transparency provisions that minimize disputes.

## Prerequisites

1. **Franchise Agreement** — executed copy with date, amendment numbers, notice clauses, defined terms (especially "Gross Sales")
2. **Fund structure** — standalone vs. addendum; national vs. regional; separate account vs. accounting mechanism
3. **Contribution rate** — percentage of Gross Sales, payment frequency, remittance method (typically EFT aligned with royalty schedule)
4. **State franchise law** — jurisdiction-specific disclosure obligations, separate-account mandates, reporting requirements
5. **FDD language** — current Item 6 and Item 7 advertising fund disclosures for consistency

## Document Sections

| # | Section | Key Content |
|---|---------|-------------|
| 1 | Header & Parties | Title, legal names, effective date, reference to underlying Franchise Agreement, incorporation language |
| 2 | Recitals | Fund business purpose, mutual benefit acknowledgment, obligation commencement date |
| 3 | Fund Establishment | Scope (national/regional/system-wide), legal structure, stated purpose |
| 4 | Contribution Obligation | Gross Sales percentage, Gross Sales definition, payment frequency/due dates, remittance method, late-payment consequences |
| 5 | Fund Administration | Franchisor discretion, non-fiduciary disclaimer, enumerated permissible uses, rate/structure modification with notice, carry-forward and borrowing |
| 6 | Franchisee Rights & Limitations | No proportional-benefit or geographic-targeting guarantee, separation from local ad obligations, franchisor approval over local ads, limited audit rights |
| 7 | Financial Reporting | Annual minimum reporting (receipts, disbursements by category, ending balance), audit provisions, FDD integration, surplus/deficit treatment |
| 8 | Term & Termination | Coterminous with franchise agreement, modification notice periods, post-termination payment obligations, surviving provisions, fund dissolution |
| 9 | Legal Compliance | Authority representations, state franchise law compliance, FDD consistency, governing law, dispute resolution, integration clause |
| 10 | Execution | Signature blocks, printed names/titles/dates, personal guarantee if entity franchisee, exhibit references |

## Gross Sales Definition Checklist

Include or expressly exclude each:

- [ ] Sales taxes collected
- [ ] Customer returns and refunds
- [ ] Employee discounts
- [ ] Inter-company/affiliate transactions
- [ ] Gift card sales vs. redemptions
- [ ] Delivery fees and surcharges
- [ ] Online/e-commerce revenue
- [ ] Catering or wholesale revenue

## Permissible Fund Uses

Enumerate at minimum:

- TV, radio, print, digital, social media production and placement
- Public relations and market research
- Website and app development/maintenance
- Promotional materials and point-of-sale displays
- Reasonable administrative costs (staff, agencies, franchisor management fee)

## Key Templates

**Non-Fiduciary Disclaimer:**
Franchisor administers the Fund in its sole business judgment and does not act as a fiduciary to Franchisee or any other contributor with respect to Fund assets, expenditures, or strategic allocation decisions.

**Post-Termination Obligations:**
Upon termination or expiration of the Franchise Agreement, Franchisee shall remain liable for all accrued but unpaid contributions through the effective date of termination. Franchisee shall have no ownership interest in Fund assets and no right to refund of any contributions previously made.

## Pitfalls and Checks

- **FDD consistency is mandatory** — terms must align with Item 6 and Item 7 disclosures; contradictions create regulatory exposure
- **State requirements vary** — some states mandate separate trust accounts, reporting intervals, or restrict permissible uses; verify per jurisdiction [VERIFY]
- **Non-fiduciary language is essential** — without it, franchisor risks fiduciary duty claims over allocation decisions
- **Separate local ad obligations clearly** — franchisees conflate fund contributions with local spend; use explicit disclaimer language
- **Cap modification authority** — consider maximum rate increases per period to reduce pushback and regulatory scrutiny
- **Align defined terms** — import Gross Sales from Franchise Agreement or redefine with express override; never leave ambiguous
- **No refund on termination** — standard but must be clearly stated to be enforceable
- **Format consistency** — match typography, numbering, and defined-term conventions of the underlying Franchise Agreement if drafting an addendum