Blog

Do you know INDIA is the second largest franchise market in the world? Currently in India there are 4600 active franchise operators, operating more than 2 lakhs franchises in India. 

Shocking right! That is the real time scenario of the franchise market in India. With the growing trend for franchise business in India, the market is valued at 800 billion dollars and expected to grow 30% to 35% per year.

Franchise market is endless in India, with more than 300 companies in India giving franchising year. The franchise market is the fastest growing economy in India, contributing nearly 2% of the total GDP of India. 

With the franchise Industry in India expecting a growth of 140-150 billion USD, the franchise market is generating a large number of jobs in many industrial sectors. 

Navigating through franchise agreement in India

The franchise agreement in India is a legal document, which acts as a signing contract between the franchisor and the franchisee covering the legal documentation discussing the roles and responsibilities of the business. 

The main objective of the franchise agreement in India is to protect the franchise systems as a whole for both the franchisor and the franchisee.  The franchise agreement gives the franchise the rights to operate the franchise business and utilize the franchise specific resources such as the business model, branding of the franchise, business sources. 

There are a lot of rules that are included in a franchise agreement in India, this is to state that what are the means that franchisee can operate the existing franchise business.

Is there any law for free franchise agreement in India?

There is no key legislation drafted for franchise businesses in India, but when drafting a franchise agreement in India, make sure that these laws  adhere.

• The Indian Contract Act, 1872.
• The Foreign Exchange Management Act, 1999 (FEMA).
• The Competition Act, 2002.
• The Trademarks Act, 1999.
• The Copyright Act, 1957.
• The Patents Act, 1970.
• The Design Act, 2000.
• The Income Tax Act, 1961.
• The Arbitration and Conciliation Act, 1996.
• The Specific Relief Act, 1963.
• The Information Technology Act, 2000.

Key elements of franchise agreement in India

• Defining the relationship between the franchisor and franchisee
• Specifying the duration to Operate the franchise business
• Detailing about the franchise fee and royalties in franchise agreement
• Specifying the operational standards and procedures
• Providing training and support to operate the franchise
• Dedicating the advertising and marketing with advertising fee
• Outiling about the policy renewal or cancellation terms
• Finding the right location for the business

Essential elements to be included in a franchise Agreement in India

There are some key terms that are needed to be included  in franchise agreements in India. A well drafted franchise agreement  is crucial to establish a healthy relationship between the franchisor and the franchisee.  Here are some essential elements of a franchise agreement in India,

1. Parties of Agreement

This should be clearly stated in a franchise agreement which identifies the franchisor (the franchise business owner) and the franchisee (the supporting operator of the franchise business). The contact details and any other required details should be mentioned in the franchise document. 

2. Duration of franchise Agreement

The Clause should contain the duration for which the franchisee is granted permission to operate the business. This clause should clearly mention the time period, which is usually 5 to 10 years.

3. Franchise Fee and Royalty Fee

There are certain amounts such as an initial non refundable amount paid by the franchisee to franchisor to acquire the right of the franchise business, which is franchise fee, and also they will be paying royalties to the franchisor as an ongoing fee. These fee structures should be mentioned in a franchise agreement in India.

4. Operation Management

This clause outlines all the requirements that a franchisee needs to know before operating the franchise business. This includes the goods and services that are being offered, and stating the operational condition and limitation of the franchisee.

5. Training and Support

The most intellectual part of a franchise business is getting training support from the franchisor. The franchisor must provide training support to the franchise, to ensure that the franchisee can operate the business easily. 

6. Advertising

The franchise agreement in India also adheres to the franchise advertising fee, which the franchisor charges for the efforts that are made for establishing the franchise brand through marketing.

7. Policy Renewal or Cancellation Terms

It is essential for the franchisor to precondition the circumstance of renewal of franchise agreement and also for the cancellation of the franchise agreement to protect themselves from adverse legal obligations

8. Insurance

This clause states the requirement of insurance for both the franchise and the franchisor. The franchisee insurance policy must indemnify to protect both the franchisee and franchisor.

9. Site Selection

The location of the franchise business is more important in a franchise business, the franchisee can have the option to select multiple locations, franchisor analyze the location using their expertise and select one location that is best suits for the franchise business.

Conclusion

For a franchise owner, it is important to know the franchise laws that are adhered to the franchise agreement in India.  Owing to that a Franchise Agreement should be drafted in a way that it obligates to both the franchisor and the franchisee. Also both the franchisor and the franchise should review the franchise agreement before entering the business relationship. 

FAQ

1. Are there any registration requirements for franchises?

There is no obvious registration and franchise agreement format in India required to start a franchise business. If you are a new business owner, you need to acquire the Good and Service Tax (GST) registration based on your turnover. If you are an existing franchise owner, you need to get a separate registration that doesn’t align with your previous existing businesses.

2. Is it true, there is no Franchise law in India?

In India, there isn’t a specific franchise law, but you can understand the concept through the Finance Act, 1999, even though it’s been replaced by the Goods and Service Tax (GST). From this act, you can see a franchise business as an agreement where you get the right to sell goods, provide services, or use processes linked with the franchisor, whether or not it involves trademarks or logos.

3. What is a franchise agreement in India?

The franchise agreement in India is a legal document, which acts as a signing contract between the franchisor and the franchisee covering the legal documentation discussing the roles and responsibilities of the business. The franchise agreement gives the franchise the rights to operate the franchise business and utilize the franchise specific resources such as the business model, branding of the franchise, business sources.

4. How much does a franchise agreement cost in India?

Franchise agreement in India cost is the upfront expenses that are paid by the franchisee to the franchisor to acquire the trademark and business licenses to operate the franchise. The franchise fee in India may range from 1 lakh to 35 lakhs depending on the type of franchise you choose.