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FRANCHISING LAW

FRANCHISING LAW FAQ

  • What should be the Contents of a Franchising Contract as Per Indian Laws?

    In the absence of a specific legislation, it essential that the Franchising contract is negotiated and drafted carefully. Some of the important clauses to be included in the contract could be:

    Rights and Obligations of the parties: The rights and obligations of each party should be clearly laid down in order to avoid any kind of confusion.

    Intellectual Property Rights: This clause would specify the Intellectual Property, for example: the trademark or trade name, involved in the Franchising arrangement.

    Territory: This clause would clearly state the size of the territory for which the Franchising agreement shall be valid.

    Consideration: This would include payment terms i.e. royalties of the Franchising agreement.

    Termination: This clause usually lays down the conditions warranting the parties to cancel the Agreement.

  • What are the Precautions that are needed to be taken before Franchising in India?

    Before Franchising in India, it is advisable for the businesses to do some preparation. Some of the precautions are:

    A thorough market research on the goods and service that are to be franchised is necessary.

    There are several Franchising models that Franchises can adopt, therefore choosing the right and most suitable entry strategy is important.

    A detailed study should be done on the Franchise/License fees that has to be paid. Sometime the Reserve Bank of India can regulate the fees on a case to case basis

  • What are the Benefits of Franchising in India?

    There are many benefits of Franchising in India. Some of the benefits are:

    The financial investment requirement for Franchising in India is low, as there are many businesses in the Indian market who would invest money in potential Franchise.

    The geographical size and abundantly diverse business minds in India is ideal for a Franchise model.

    The strong, powerful and Franchise friendly business environment are some other positives.  

  • Who can Franchise in India?

    Any business entity or an individual can Franchise in India. Franchising is a strategy for business expansion. Even a foreign company can Franchise in India. Franchising is one of the most preferred routes that a foreign entity chooses to expand or establish itself in India.

  • How can a Foreign Company Franchise in India?

    Following are essentially some of the ways in which a franchise system may be expanded overseas:

    The franchisor, either from its headquarters or from foreign branch operation, grants individual franchises to franchisees in the target country

    The franchisor enters into a master franchise agreement.

    The franchisor establishes a subsidiary in the target country, and that subsidiary acts as the franchisor.

    A joint venture is established between the franchisor and a third party who is knowledgeable about the target country. The joint venture will acts as the franchisor in the target country.

  • What are the Type of Franchising Agreements in India?

    There are three broad classifications of a Franchising Agreement, which are further divided into different types. These are:

    There are three broad classifications of a Franchising Agreement, which are further divided into different types. These are:

    • ON THE BASIS OF FORMAT OF FRANCHISING AGREEMENT
      • Product or Distribution Franchise: A product manufactured by franchisor is sold to a franchisee who, in turn, sells it to consumers under the trademark of the franchisor. Automotive and petroleum franchises such as Ford, General Motors, and Exxon are example of this type of franchise model. However, there is a difference between Franchising agreement and Distribution agreement in India. Under a franchise agreement, the franchisee is permitted and encouraged to use the trademarks and brand name of the franchisor as part of its everyday business practices. A distributor is not permitted to operate under the trademarked name of the company whose products it distributes. Instead, the distributor operates under its own business name. 
      • Manufacturing, Production or Processing Franchise: The franchisor sells the franchisee an essential ingredient, or provides some specific know-how which, along with ongoing quality controls by the franchisor, enables the franchisee to manufacture or process the final product and sell it to retailors, or in some cases, to end consumers. Coca-Cola operates in many markets throughout the world in this manner, supplying franchisee with the essential ingredient of Coca-Cola. 
      • Business Format Franchising: The franchisor licenses to another franchisee the right to use the particular business model including the IPRs associated with it. The franchisor licenses to another franchisee the right to use the particular business model including the IPRs associated with it. Internationally known brands such as Hilton, Holiday Inn and 7-Eleven are examples of companies that use this model.
    • ON THE BASIS OF CONTROL OVER THE FRANCHISEE
      • Direct Franchising: A franchisor enters into individual franchise agreement for each outlet thereby franchisor having direct control over each franchisee. However, in case of international franchising due to issues of repatriating revenues, tax implications, as well as difficulties related to dealing with the unique attributes of different countries, including language, culture, laws, regulations and business practices a master franchise model is preferred.
      • Master Franchise Agreement: In this another entity is given the right to sub-franchise the franchisor’s business concept within a given territory in accordance with a development timetable. Here, the franchisee, in effect, acts as the franchisor in the target country. the disadvantage of this approach is the loss of control over sub-franchisees.
    • INTERNATIONAL FRANCHISEE
      • Following are essentially some of the ways in which a franchise system may be expanded overseas:
        • The franchisor, either from its headquarters or from foreign branch operation, grants individual franchises to franchisees in the target country
        • The franchisor enters into a master franchise agreement.
        • The franchisor establishes a subsidiary in the target country, and that subsidiary acts as the franchisor.
        • A joint venture is established between the franchisor and a third party who is knowledgeable about the target country. The joint venture will acts as the franchisor in the target country.
  • How is Franchising Regulated in India?

    There are several different laws that that regulate Franchising in India. Some of these are:

    Taxation Laws: The Taxation Law in India regulates the tax liability of the parties involved aspect of the Franchising association. For example: Income Tax Act, 1961 ensures that anyoneminting money on Indian soil pays the requsite taxes. Where the franchisor receives royalties, service or franchise fees, tax has to be paid under the income tax act (as income arising and accruing in India), whether the franchisor is an Indian or foreign party. In a case where the foreign franchisor sends training personnel and supervisors to India, the salaries payable to these persons may be subject to personal income tax, whether an arrangement is made to deduct the tax at source or they are taxed as self-employed persons (if they come as consultants).

    Indian Contract Act,1972: The association of the parties involved in Franchising process in India is governed by the Indian Contract Act, 1872 by regulating the Franchising Agreement between the two.

    Competition Act, 2000: Competition Act, 2000 ensures that the Franchising association only promotes healthy competition in India. The Franchising association should not have an appreciable adverse effect on competition in India.

    Intellectual Property Laws: The Franchising association between parties involves exchange or sharing of Intellectual Property, for example: trademarks. The feature of Franchising association is regulated by the Intellectual Property Laws in India.

  • What is the Law of Franchising in India?

    Currently there is no particularly dedicated legislature to regulate Franchising in India.

  • What is Franchising?

    Franchising is a process by which an entity expands its business by allowing other existing entities or would be entrepreneurs (franchisees) the right to use the franchisor’s proven business model in another location for a definite period of time in exchange of initial and ongoing fees.

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