Franchise Agreement in India – A term you would have encountered several times when you plan to grow your business in India via the franchising model. Is that right? Well, yes. When you use franchising to grow your business in India, you need a franchise agreement.
It defends the interests of both the franchisor and the franchisee, ensures that the brand stays consistent, helps the business grow and expand, and ensures that all legal requirements are met. It is an essential contract that sets the groundwork for a successful and mutually beneficial relationship between the franchisor and the other entity.
Like in every business, a company looking to expand its presence in India needs to draft a franchise agreement to avoid any miscommunication or disputes later in the business.
Therefore, there are certain crucial clauses that need to be included while drafting the same. Our blog will give you insights into the important terms and conditions of a franchise agreement, why the need for a franchise agreement, and more.
Crucial Elements of a Perfect Franchise Agreement Format in India
When preparing a franchise agreement in India, it’s important to think about the different terms which outline the rights, responsibilities, and obligations of both the franchisor and the prospective buyer.
Crucial terms to consider.
1. Franchise Grant
Make sure the other entity knows exactly what rights they have, such as the right to use trademarks, trade names, logos, and other intellectual property that belongs to the company.
2. Territory
Define the exact area in which they have the right to run the business, either exclusively or not.
3. Agreement Term & Renewal Clause
Find out how long the franchise deal will last and how it can be renewed or terminated. Include notice dates and any renewal fees that may be needed.
4. Franchise Fees
Details about the initial fee, ongoing royalties, advertising fees, and any other financial responsibilities. Tell me when and how I should pay these fees.
5. Standard of Operations
Set the standards for quality, look, and how the business is run that the franchisee must follow. This could include details about goods, services, equipment, signs, uniforms, and marketing materials.
6. Training & Support
Give details about the training programs and ongoing support that the franchisor offers to the franchisee, such as initial training, refresher classes, and help with operations, marketing, and training staff.
7. IPs
Make it clear which trademarks, patents, copyrights, trade secrets, and other intellectual property belong to the company. Include rules that will protect and keep the brand’s identity.
8. Non-Disclosure & Non-Compete
Include clauses that stop the other entity from running a competing business while the agreement is in effect and limit how confidential information can be shared.
9. Termination and Dispute Resolution Clause
Set out the conditions under which either side can end the contract, and explain how disagreements will be settled, such as through mediation or arbitration.
10. Marketing & Advertising Support
Define what the other party needs to do for local advertising and marketing, as well as what he or she needs to do for national or regional marketing projects.
11. Insurance & Indemnification Clause
Explain what kind of protection the franchisee needs, such as liability, property, and workers’ compensation. Make sure both sides know what they need to do to protect themselves.
12. Agreement & Amendment Clause
Include a clause that says the franchise agreement is the only deal between the parties and that any changes must be in writing and signed by both parties.
13. Legal Clause
Find out what law applies to the agreement and where disagreements are usually settled, which is usually in the courts of a certain city or state in India.
14. Rights to Transfer
Set out the steps and conditions for moving or assigning the franchise agreement to someone else, making sure that the franchisor’s approval is needed.
15. Audit & Inspection Clause
Indicate that the franchisor has the right to check the franchisee’s location, books, records, and activities to make sure they are following the agreement.
Nevertheless, it’s important to talk to a counselor who specializes in franchise law in India to make sure that your franchise deal follows the rules and laws of the country. This list isn’t complete, and based on the circumstances of the franchise, you may need to add more terms.
Why Franchise Agreement is Required while Franchising Your Business in India
When you use franchising to grow your business in India, you need a franchise agreement for many reasons.
- Provides legal protection to your business – Both the franchisor and the franchisee benefit from the legal safeguards afforded by a franchise agreement. It ensures that all parties to the partnership are on the same page by setting forth the roles of each and outlining their respective responsibilities and rights. This aids in avoiding disputes and misunderstandings.
- Ensures Consistency across the units & protects the brand image – By establishing the norms, processes, and operational requirements that franchisees must adhere to, a franchise agreement ensures uniformity across all franchise sites. Consistency in product quality, service standards, and overall customer experience aids in safeguarding the franchisor’s brand reputation.
- Protects the business’s IPs – Trademarks, trade names, logos, and proprietary systems are common forms of intellectual property held by franchisors. The franchise agreement defines the franchisor’s ownership rights and the franchisee’s limited permission to use and profit from the franchise system. There are clauses in there to restrict franchisees from using the franchisor’s ideas without permission.
- Helps in Growth & Expansion – The franchise agreement establishes guidelines for the systematic growth of the company via franchising. It enables the franchisor to rapidly expand and penetrate new markets by licensing its brand to many franchisees in a variety of geographic areas. It also details the procedures for franchise extension, termination, and assignment.
- Compliance with the legal framework – In India, franchise contracts must meet several statutory and regulatory standards. They need to follow the Ministry of Corporate Affairs’ Franchise Disclosure Guidelines as well as any other applicable rules. A well-drafted franchise agreement will ensure that these conditions are met, lowering the likelihood of legal issues.
- Maintain control and support of the business – The franchisor can exercise some management oversight thanks to the franchise agreement. It describes the training, ongoing support, assistance with advertising, and use of the franchisor’s proprietary systems that will be offered to the franchisee. In this way, the franchisor can be sure that the franchisee is running the business the way it should be run.
FAQs
Q.1. Who can help draft a franchise agreement sample in India?
A franchise agreement is a legally binding document, so it is important to have an experienced lawyer or an experienced consultant in the field of franchising, write or review it to protect your interests and make sure you are following Indian law.
Q.2 Where can I get a franchise agreement in Word format in India?
It can be hard to find a franchise agreement template in Word format that is specific to India since legal templates are usually only available from lawyers or specialized platforms. Please keep in mind that while using a template as a starting point can be helpful, it is important to get legal advice and customize the franchise agreement to your specific needs. This is because general templates may not fully cover the details of your business or meet the legal requirements in your area.
Q.3. Who should draft a franchise agreement in India?
You can find generic franchise agreement templates or use online resources, but it’s important to remember that each franchise agreement is different, and a properly written agreement should represent the specific circumstances and legal needs of the parties involved. Consulting with a lawyer gives you the knowledge and direction you need to write a complete and legal franchise deal in India.
To Conclude,
Franchise agreements help businesses grow and expand into new markets. They make it easy for qualified people or businesses to get franchise rights, which lets the company move quickly into new markets.
The agreement spells out the rules for opening new franchise locations, having exclusive rights to a region, and renewing or ending the franchise. This power to grow and expand is one of the most important benefits of franchising. Get in touch with our experts at Sparkleminds to know how to get started with your franchise agreement in India right away
