Are you interested in starting a franchise business in India? Before you make an effort to begin the process, we’d like to share some useful information. The section below in this write-up will familiarize you with the necessary requirements and aspects for establishing a growth-oriented franchise business in India.
There are a few important requirements for establishing a Franchise Business in India for your company’s growth and prosperity, which are detailed below:
Essential Requirements for Setting up Franchise Business
One of the most important tasks for any aspiring entrepreneur looking to enter the business world is to identify a niche. When you finally decide to start a franchise business, make sure to choose a business domain that will serve you well in terms of both sustainability and revenue generation.
To make an informed decision, it is recommended that you conduct an in-depth market and city-specific research. Remember that trending niches are more susceptible to fierce competition.
Addressing the Formalities
Once you’ve decided on a niche, make sure you obtain legal permission from the Ministry of Corporate Affairs (aka MCA) as soon as you sign the franchise agreement with the relevant company. If the franchise is located outside of Indian Territory, make sure to hire a professional firm to help you overcome the difficulties in the early stages.
Take legal ownership of the property once you have met the above requirements. It is recommended that the legitimate witness be arranged during the legal process to avoid any future legal conflict with the franchisee.
This is the most important aspect of establishing a franchise business in India. To operate smoothly within the legal framework, you would require a different type of licencing and registration. For example, if you are running a food chain business, you must obtain the FSSAI licence without exception.
Human Resource Requirements
Human resources are also important in the franchise’s business operations in India. As a result, you must understand the number of workers required to support the operation. As an owner, you must also become acquainted with the roles and responsibilities of your employees in order for the hiring process to run smoothly.
Addressing Tax liabilities
Any business owner must be aware of the tax implications. As a result, we would like you to emphasise the importance of understanding the various types of taxes that apply to your business.
From customs duty to GST, the range of taxation in India is quite broad, so it is critical to understand the layers and be prepared accordingly. During this stage, you can also determine the best way to avoid heavy taxation.
Overseeing Currency Risks
This is essential for entrepreneurs who do business on a global scale. Their initial investment is usually in foreign currency, while their first earnings are in Indian currency.
As a result, before beginning a business operation, it is critical to gain a better understanding of currency value differences. It will provide accurate profit and loss information.
General Documents required for Franchise Business
The Franchise Agreement and the Franchise Disclosure Document (FDD) are the two main documents that must be drafted in order to establish a franchise business in India.
The franchise agreement serves as a legally binding contract between the franchisor and franchisee. It includes an important clause outlining the duties and rights of the parties involved. The agreement aims to protect the franchise system’s integrity. A good franchise agreement is transparent and concise. This agreement generally addresses the following issues:
- Initial & ongoing franchise fees
- Timelines for commencing the franchise for business
- Franchise territory protections (if applicable)
- Specifications related to the equipment, supplies, & inventory
- The term of the agreement for the renewal
- Rules regarding the transferability of the franchise to a third party.
- Conditions regarding the termination of the agreement
- Post-termination obligations
- Non-compete agreements
- Min. sales requirements
- Arbitration for Disputes settlement
Franchise Disclosure Document
A Franchise Disclosure Document (FDD) should be written in accordance with the law. According to the law, the franchisor is not obligated to sell the franchise until the prospective franchisee has received an FDD.
In India, there is currently no separate law that governs franchised businesses. As a result, franchise agreements are largely contractual in nature, making franchise agreements is extremely important in the business world.
Furthermore, depending on the nature of the franchise arrangement and the industry in which the franchise operates, several other laws may have an impact on franchise business in India. Essentially, every franchising relationship is a contractual relationship, and thus such business activities fall under the purview of the Indian Contract Act, 1872.
Relevancy of Indian Contract Act for Drafting a Franchise Agreement
According to the Contract Act, a contract is a legally binding agreement. To be legally enforceable, every franchising agreement must ensure compliance with the following criteria. The following are the elements that formed the basis of the contract:-
- An agreement, i.e., an offer & an acceptance of the offer;
- Lawful consideration relating to the agreement;
- Lawful object & purpose of the agreement;
- Free Consent of the parties to the agreement;
- Monetary Consideration of the parties to enter into a contract
In a nutshell, a franchise is a strong business model that reduces the franchisee’s liability to face all of the losses that are more common in other business forms. Franchise in India is emerging as a growth-oriented business form for entrepreneurs and startups who do not want to take significant risks up front.
In India, the franchise is a successful business model. Drafting a franchise agreement is a professional’s job, and it should never be attempted without the supervision of a franchise consultant. As a result, it is critical to remain within the purview of a professional in order to complete the legalities associated with the Franchise business. If you want to proceed with expert intervention for setting up a Franchise business in India, please feel free to consult our sparkle★minds experts.
Over 500 + clients have franchised their businesses and have achieved great business results with sparkle★minds , so why are you waiting? Get in touch with us!