Table of contents
- What is a Franchise Agreement?
- Why are Franchise Agreements Popular in India?
- Key Components of a Franchise Agreement in India
- Legal Framework for Franchise Agreements in India
- Steps to Enter a Franchise Agreement in India
- Pros and Cons of Franchise Agreements
- Franchise Business Models in India
- Tips for Success in Franchising
- Conclusion
- Frequently Asked Questions (FAQs)
Franchise agreements are booming in India as businesses look to expand quickly without investing in every new outlet. If you’ve ever visited McDonald‘s, Subway, or even a local brand like FabIndia in multiple cities, you’re already familiar with franchises in action. But what exactly is a franchise agreement, and how does it work in India? Let’s break it down in a simple and engaging way.
What is a Franchise Agreement?
A franchise agreement is a legal contract between two parties:
- Franchisor: The original business owner who has developed a brand, product, or service.
- Franchisee: An individual or company that pays to operate a business using the franchisor’s name, systems, and support.
Key Highlights:
- It’s a binding contract under the Indian Contract Act, 1872.
- It sets out rights, obligations, fees, territory, duration, and terms for termination.
- Indian franchise agreements are usually registered under private contracts, as there is no specific franchise law in India (yet).
Why are Franchise Agreements Popular in India?
India is the 2nd fastest-growing franchising market globally. According to the Franchise India Report:
- The Indian franchise market was worth INR 938 billion in 2022.
- Over 4,600 active franchisors exist.
- Food & Beverage, Education, Health & Wellness, and Retail are the top sectors.
Real-World Examples:
- KFC India: Operated by Devyani International.
- DTDC Courier: Operates through over 10,000 franchisees across India.
- Lakmé Salon: Has 400+ franchise salons across India.
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Key Components of a Franchise Agreement in India
A well-drafted franchise agreement typically includes:
1. Franchise Fees and Royalties
- Initial one-time fee (can range from INR 2 lakhs to INR 50 lakhs+)
- Ongoing royalty (usually 4-10% of monthly revenue)
2. Territory Rights
- Exclusive or non-exclusive rights for a specific location.
3. Training & Support
- Includes staff training, operational manuals, marketing help.
4. Brand Usage Rights
- Legal rights to use the logo, trademark, and brand identity.
5. Duration and Renewal
- Most agreements last between 5 to 10 years.
- Renewal clauses are typically included.
6. Termination Clause
- Covers conditions under which the contract can be ended.
- Protects both parties from breach of terms.
7. Dispute Resolution
- Usually via arbitration, as per the Arbitration and Conciliation Act, 1996.
ALSO READ | Baskin Robbins Franchise: Cost, How to Apply, Demand, Benefits & More
Legal Framework for Franchise Agreements in India
Although India doesn’t have a dedicated franchise law, various existing laws cover parts of it:
| Law/Act | Purpose |
|---|---|
| Indian Contract Act, 1872 | Governs the basic legal framework of franchise agreements. |
| Competition Act, 2002 | Prevents anti-competitive practices. |
| Consumer Protection Act, 2019 | Protects consumer rights in franchised businesses. |
| Trademark Act, 1999 | Protects brand and intellectual property. |
| Foreign Exchange Management Act (FEMA) | Applies to international franchisors entering India. |
Steps to Enter a Franchise Agreement in India
Step 1: Research
- Choose a franchise model that fits your budget and interest.
- Check franchise reviews and market performance.
Step 2: Evaluate the Agreement
- Hire a lawyer to review the contract.
- Check clauses around termination, territory, and royalties.
Step 3: Register Business
- Choose the right business structure: Proprietorship, LLP, or Pvt. Ltd.
Step 4: Sign the Agreement
- Ensure all negotiated terms are in writing.
Step 5: Launch & Operate
- Undergo training.
- Begin business under franchisor guidelines.
Pros and Cons of Franchise Agreements
✅ Pros:
- Low risk with an established brand.
- Marketing and operational support.
- Higher success rate than starting from scratch.
❌ Cons:
- High entry costs.
- Limited creative freedom.
- Bound by franchisor’s rules and brand image.
ALSO READ | Chai Sutta Bar Franchise: How to Apply, Set-up Cost & More
Franchise Business Models in India
| Model Type | Description | Example |
| Product Franchise | Franchisee sells franchisor’s products. | Amul, Raymond |
| Business Format | Complete replication of the business. | Domino’s, Subway |
| Manufacturing | Franchisee manufactures products under license. | Coca-Cola bottlers |
| Distribution | Right to distribute products in a region. | Samsung Distributors |
Tips for Success in Franchising
- Always read the fine print.
- Avoid franchisors who promise high returns with no proof.
- Visit existing franchisees to know the ground reality.
- Negotiate terms like territory and exit clauses.
(Check Out: Best Franchise Business Ideas To Start in India in 2025)
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Conclusion
Franchise agreements in India offer an excellent way to become a business owner with less risk and more support. However, it’s essential to understand the legal terms, responsibilities, and limitations before signing the dotted line. Whether you’re looking to open a McDonald’s or a regional beauty salon, a franchise agreement is your foundation. Do your homework, and you’ll be on your way to building a successful business.
Frequently Asked Questions (FAQs)
1. What is a franchise agreement?
It’s a legal contract between a franchisor and a franchisee that outlines the rights and duties of each party.
2. Is franchising regulated in India?
Not specifically, but it’s governed by various laws like the Indian Contract Act and Trademark Act.
3. Do I need a lawyer to review my franchise agreement?
Yes, it is highly recommended.
4. What fees are involved in a franchise agreement?
Typically, a one-time setup fee and ongoing royalty based on sales.
5. Can a franchise agreement be terminated?
Yes, based on the termination clause in the agreement.
6. What sectors are most popular for franchising in India?
F&B, Education, Retail, and Health & Wellness.
7. Are international franchises allowed in India?
Yes, under FEMA guidelines.
8. How long does a franchise agreement last?
Usually 5 to 10 years, depending on the contract.
9. Can I sell my franchise?
Only if the franchisor permits it; it should be mentioned in the agreement.
10. What are some famous franchises in India?
McDonald’s, Domino’s, DTDC, Lakmé, FirstCry.
