A franchise agreement grants a franchisee the right to run a business using the franchisor's brand, systems and know-how in exchange for fees and royalties. Key clauses cover territory, fees, trademark licence, training and support, quality standards, audits, term and renewal, termination and post-termination restrictions. There is no separate franchise law in India, so the contract does the heavy lifting.
Essential clauses
- Grant of rights and territory, exclusive or not
- Initial fee, royalty and marketing contribution
- Trademark and know-how licence
- Training, manuals and support
- Quality standards, audits and reporting
- Term, renewal and termination
- Non-compete and confidentiality
Before franchising
- Register trademarks in relevant classes.
- Document operations manuals.
- Test the model's unit economics.
- Prepare a disclosure document for prospects.
Tax and regulatory
Franchise fees and royalties attract GST, and TDS may apply on royalty payments. Cross-border franchises also involve FEMA and withholding tax.
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Get expert help →Dispute prevention
Clear performance standards, reporting and escalation steps, with arbitration clauses, reduce costly disputes.
Frequently asked questions
Is franchise registration required in India?
There is no franchise registration law in India. However, trademark registration and properly stamped agreements are strongly advisable.
Can a franchisor terminate the agreement anytime?
Only as permitted by the agreement. Well-drafted agreements specify termination grounds, cure periods and consequences.
Is a franchise agreement stamped?
Yes. Franchise agreements should be stamped as per the applicable state stamp law to be admissible in evidence.
What royalty rates are typical?
Rates vary by industry and brand strength, often a percentage of sales. They should reflect the value of the brand and support provided.
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