Franchises are generally known to the public under a well promoted name like MC Donald’s not the name of the individual Franchise owners.
Historically the word franchise meant the granting of a right or privilege to an individual or group. In more recent times it includes business arrangements known as franchises, licenses, dealerships and distributorships.
Franchising may be defines as a business arrangement which allows for the reputation,( good will) innovation, technical know-how and expertise of the innovator (franchisor) to be combined with the energy, industry and investment of another party (franchisee) to conduct the business of providing and selling of goods and services.
For a company wishing to expand to other locations, franchising offers the opportunity to have branch location operated by “dedicated” managers rather than company employees. A franchisee will sell more, service customers better and control cost more tightly than company employee.
The franchise arrangement will usually also require the franchise to protect the Intellectual Property of the franchised System and to operate in accordance with territorial or geographical obligations agreed.
- Is not a business or an industry.
- Is a method of distributing products and service to customers.
- Utilizes a network of local owners (“locally owned and operated”) operating under a share brand.
- Franchisees –Pay the franchisor for the right to do business under the shared brand.Operate under a specified, controlled business method or format.
- Franchisors -Provides significant initial and on –going support.
The franchise agreement is essentially a legal document between the franchisor and the franchisee. It is a legal binding agreement. Every franchisee is required to sign the franchise agreement, and the franchisor will also sign the document.
Franchise agreements are covered under two standard commercial laws: the Contract Act 1872 and the Specific Relief Act 1963, which provide for both specific enforcement of covenants in a contract and remedies in the form of damages for breach of contract.
There is no standard form of franchise agreement because the terms, conditions, and the methods of operations of various franchises vary widely depending on the type of business.
Laws that apply to Franchising –
There is no specific law pertaining to franchising in India, franchising as a business touches upon various business laws within India.
- Intellectual Property Laws
- Consumer Protection & liability
- Competition Law and M.R.T.P issues
- Tortuous Issues
- Corporate Laws
- Labor Laws
- Transfer of Property
- Insurance Laws
- E- commerce related Laws
- Foreign Exchange Management Act. 1999
It is essential that good quality legal documentation is prepared by a solicitor experienced in both the legal and commercial of franchising. This is not just a technical exercise; franchise agreement is the foundation of every franchisor’s business.
Successful franchises are the result of Innovation, Initiative, Investment and Industry.A good franchise is always sparked by a good idea which fills a market need.
Franchise termination is covered in the franchise agreement between the franchisor and franchisee. Upon termination and/or expiration of the franchise the franchisee shall stop any use of the trademark / or trade secret or any authority given to use the business practices/ policies.