A popular business model globally, including in India is franchising. It offers a chance for entrepreneurs to launch a company with the brand, operational model and products of an established company. This blog will explain what franchise law is in India, what laws apply and what you should know before you purchase a franchise.
What is the Meaning of Franchising?
Franchising is a method where a company expands and services or goods are distributed under a license. In franchising, a business (the franchisor) grants an additional party (the franchisee) the use of its trademark, brand, and business model to run a company. The franchisee pays a beginning charge and ongoing royalties to the franchisor.
Benefits of Franchising
These are the major benefits of franchising in India:
| Benefits | Description |
| Brand recognition | Franchise owners benefit from the brand name and client list of the franchisor. |
| Training & Support | Franchisors provide training and assistance to help franchisees succeed. |
| Marketing help | Franchisees have access to national and regional marketing campaigns, as well as marketing materials. |
| Proven business model | Franchises are based on a tested and successful business model, reducing the risk of failure. |
| Group purchasing power | Franchisees receive discounts on equipment and supplies by purchasing in bulk. |
Legal Framework for Franchising in India
Both franchisors and franchisees must follow these laws among others:
- Indian Contract Act, 1872: All contracts in India including franchise agreements are governed by this Act. It makes agreements legal (and enforceable). The Act concerns the offer, acceptance, consideration and capacity of the parties to contract.
- Patents Act, 1970: This Act protects inventions legally. In case a franchise involves patented products or processes, you must understand this law to protect intellectual property interests.
- Designs Act, 2000: This Act protects design features of products that might be essential to franchises with distinctive product designs.
- Specific Relief Act, 1963: Redresses a party for breach of contract. Franchising and franchisees should know their remedies if disputes come up.
- Transfer of Property Act, 1882: This Act respects property transfers, including franchises of real estate.
Disclosure Norms for Franchise
Unlike several countries with extremely rigid disclosure laws, India doesn’t require franchisors to prepare long disclosure documents to potential franchisees. But it’s best for franchisors being transparent and provide franchisees the info they need to make a great choice.
Registration Requirements for Franchise
In India, franchisors don’t have to register with any regulator before they sign a franchise agreement. But still, trademarks ought to be registered to safeguard the brand legally.
Importance of Franchise Agreement
A franchise agreement must spell out the rights and duties of every party, including:
- Fee for Franchise: Details of initial fee and ongoing royalties.
- Territory: Geographic area in which the franchisee can operate.
- Duration: The length of the franchise agreement and renewal terms.
- Training & Support: The support and training from the franchisor.
- Operational Guidelines: The procedures and standards the franchisee has to adhere to.
- Marketing and Advertising: Marketing support and obligations of the franchisee.
- Termination Conditions: How the agreement could be terminated.
Duties of Franchisee
The duties of franchisees include:
- Maintain Standards: Stick to the franchisor’s operating guidelines.
- Brand Protection: Uphold the brand reputation and goodwill.
- Reporting: Give the franchisor regular financial and operational reports.
- Promotion: Market the franchise actively.
- Compliance: Follow all legal/contractual responsibilities.
Responsibilities of the Franchisor
Franchisors also have responsibilities:
- Training & Support: Offer initial and ongoing training and assistance for franchisees.
- Quality Control: Ensure all franchisees uphold the same quality and service standards.
- Marketing: Support franchisees with marketing strategies in addition to materials.
- Innovations: Constantly enhance the business model & offerings.
Restrictions & Liabilities of Franchise
Franchisors may place specific restrictions on franchisees to preserve brand consistency. They can include restrictions on:
- Selling/Transferring the Franchise: Approval might be necessary prior to transferring or selling the franchise to someone else.
- Operational Changes: Major modifications to the business model or operations might require franchisee permission.
Termination of a Franchise
Franchise agreements could be terminated for numerous reasons, including:
- Breach of Contract: Not fulfilling the conditions of the agreement.
- Monetary Insolvency: If the franchisee becomes bankrupt or insolvent.
- Legal Issues: Participation in legal disputes or criminal activities.
Dispute Resolution
Disputes between franchisees and franchisors might be settled in a few ways:
- Negotiation: This can be solved via direct discussions in between the parties.
- Mediation: The participation of a neutral third party to assist a resolution.
- Arbitration: An arbitrator’s binding determination under the Arbitration & Conciliation Act, 1996.
- Litigation: Going to court.
Conclusion
Franchising offers a profitable business opportunity for franchisees and franchisors in India. Knowing the legal framework and following best practices are essential to a successful franchise business. By understanding franchise laws and agreements, both could safeguard their interests and build an advantageous relationship.
FAQs
How to get a franchise license in India?
Find a franchise license-holder in India and fulfill their eligibility. Sign a franchise agreement detailing terms, costs and operation guidelines. Check compliance with laws and in case needed, register the franchisee using trademarks under the Trade Marks Act, 1999.
How franchising business is governed in India?
Franchising in India is governed by general commercial laws and not particular franchise laws. Key legislation for agreement enforcement consist of the Indian Contract Act, 1872; for trademark use – Trade Marks Act, 1999; and other intellectual property, consumer protection, tax & arbitrage laws. Franchise contracts establish the conditions and responsibilities of the parties concerned.
What is franchise qualification?
Franchise qualification will be the criteria a franchisor demands that potential franchisees meet being qualified for a franchise. This includes financial stability, relevant business knowledge, adherence to the franchisor’s business philosophy and occasionally particular qualifications or accreditation. Meeting these criteria enables the franchisee to operate the franchise.
What is the rule of franchise?
The rule of franchise is defined by the functional standards, royalty payments, marketing methods, territory rights, training needs and quality management outlined in the franchise agreement. These rules maintain uniformity and consistency through all franchise locations to safeguard the brand and ensure smooth operation.
