Start your franchise business easily by preparing a franchise agreement with Filecrat. All the terms are laid down in this agreement making it the most important document for a franchise business.
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A franchise allows you to enjoy the trademark, brand name and logo of a well-known business. Most people think about the fast-food chain when they hear about the word franchise but it can be related to any commodity or service.
A franchise agreement is a legally binding document by which the franchisee is granted representational right to sell or to manufacture goods or to provide service or any process identified by the franchisor, whether or not a trademark, service mark, trade name or logo or any such symbol is involved.
Advantages & Benefits
Brand Recognition: The brand’s name recognition over a particular market, country or globe may be the best reason to get an opportunity to start a franchise.
Managerial Assistance: When someone is in business with a reputable franchise, it is in both franchisor and franchisee's best interests to succeed. The franchisors have a track record of management and technical success through which they can assist the franchisee to grow and develop.
Quality control: This is the best thing of being a franchisor that they can ensure and keep a regular check of the quality or consistency of products or services present in the market under their brand name to maintain their goodwill which is also under the favour of a franchise.
Higher Success Rates: The established good-will of the franchisor in the market will always help in attaining the success and growth of the product/ service.
Opportunity for growth: It is an opportunity for the brand to grow and establish in a new market or area.
Disadvantages of a Franchise
Higher Cost: Franchise cost sometimes can be beyond your expectation as the initial cost of buying the franchise, management service fee shall be in continuance and one might have to agree to purchase the product from the franchisor.
Restrictions: The franchise agreement usually bound in certain restrictions and set certain boundaries regarding how one can lead their business which means that the essential changes cannot be made as per the local market requirements.
Bad reputation: A company always transfers its reputation along with the brand’s name which can be either good or bad that affects the business accordingly.
Difficult to sell: Companies hold the right to sell to themselves which means no other person has the right to sell it to another person.
Profit share: A large part of the profit (a percentage of the sale) always goes to the franchisor.
Important points before entering into a franchise agreement
- Read and discuss the following with the franchisor:
- Basic guidelines
- Charges payable to the Franchisor
- Services provided by the Franchisor
- Renewal of Agreement
- Promotions and publicity
- Companies always want uniformity for that they need someone to run their franchise as per their instructions because they have already learned through years of business experiments.
- The bigger brand name means less room for rearrangement of the contract of business.
- It is always important to check the previous franchise records of both the franchisor and franchisee before entering into a contract.
- Ambiguities may lead to conflicts so it is suggested to negotiate each and every part is important for both parties.
- Consult a lawyer for essentials and proper understanding of a franchisee agreement as they are mostly unilateral.
- Make a clear note and understanding of each rule, regulation, do’s and don’ts to ignore future conflicts.
Elements of a franchise agreement
- Franchise Disclosure Agreement (FDD)
- Franchisor franchisee relationship
- Duration of the agreement
- Type of franchise to be purchased
- Details of franchisor project, the region, promoting strategies
- Expenses of franchise incl. franchise fee
- Commitments of the Franchisor and Franchisee
- Training and support
- Termination of franchise agreement
- Dispute resolution Clause
- Consultation with our Expert
- 1st draft of the Agreement
- Final draft of agreement after revisions
- Documents from franchisee and franchisor:
1. PAN Card
2. Aadhaar Card
3. Address Proof
- Details of clauses which would be included in the agreement
A franchise agreement is a legally binding contract between Franchisor and Franchisee. This agreement gives the right to the franchisee to use the trademark or brand of the franchisor along with specifying the term and condition concerning the franchise.
No, India doesn’t have any separate enactment for franchise business. But there are some laws which governs various aspects of franchise agreement such as: -
- The Indian Contract Act, 1872
- The Competition Act, 2002
- Income Tax Act, 1961
- Consumer Protection Act, 1986
- Arbitration and Conciliation Act, 1996
- The Foreign Exchange Management Act, 1999
- The Trademarks Act, 1999, Patent Act, 1970, Design Act, 2000, Copyright Act 1957
It is essential to include the provisions pertaining to termination of the franchise agreement. The grounds for termination may include the following:
- A material breach of the agreement,
- Legal incapacity of any party to perform the agreement,
- Description of changes in the legal and regulatory framework in the country which may lead to termination
- Brand violation by the franchisee
A franchise royalty fee is ongoing fee that the franchisee pays to the franchisor as a part of their franchising agreement.
According to section 17 of Indian Stamp Act, 1899 “all instrument chargeable with duty and executed by any person in India shall be stamped before or at the time of execution” whereas section 2(14) defines the term “Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record.