Franchise Agreement in India: Terms, Legal Requirements & Franchisee Rights (2025)

A franchise agreement is the legal foundation of your entire relationship with a franchisor—whether you're investing in a restaurant, retail outlet, or service-based franchise. This is not just paperwork; it defines your rights, responsibilities, financial commitments, and long-term business security.

This guide explains how franchise agreements work in India, what clauses matter most, and how to protect your investment before signing.

📄 What Is a Franchise Agreement?

A franchise agreement is a legally binding contract between the franchisor (brand owner) and the franchisee (business operator). It allows the franchisee to operate a business using the franchisor’s trademark, systems, and operational model.

Unlike simple vendor arrangements, franchise relationships involve long-term commitments, strict operational controls, and brand compliance—similar in structure to a Master Service Agreement (MSA) used in recurring business relationships.

Key Elements Typically Included

Franchise fees and royalty structure
Territory and exclusivity rights
Brand usage and intellectual property licensing
Operational standards and compliance rules
Training, support, and supervision
Termination and renewal conditions

🏢 Types of Franchise Models in India

Franchise structures vary based on ownership and operational responsibility:

FOFO (Franchise Owned, Franchise Operated) – Most common in QSR, education, and fitness
FOCO (Franchise Owned, Company Operated) – Passive investment model
COFO (Company Owned, Franchise Operated) – Lower entry barrier for franchisees
COCO (Company Owned, Company Operated) – Expansion model, not a true franchise

These models are often compared with other commercial arrangements like a joint venture agreement when brands explore alternative expansion strategies.

🔑 Key Clauses to Review Carefully

Franchise Fees and Royalties

Understand upfront franchise fees, recurring royalties, marketing contributions, and hidden operational costs. Poor clarity here can severely impact profitability.

Territory and Expansion Rights

Ensure the agreement clearly defines exclusivity, online sales overlap, and whether the franchisor can appoint another franchise nearby.

Intellectual Property & Trademarks

You are licensing—not owning—the brand. Ensure trademark usage is clearly defined and legally protected under the Trade Marks Act. You may also want to review trademark ownership separately via trademark registration.

Operational Control & Performance Standards

Franchisors often impose strict operational KPIs, similar to benchmarks used in a Service Level Agreement (SLA). Understand pricing control, supplier mandates, staffing rules, and audit rights.

Non-Compete & Confidentiality

Most franchise agreements include post-exit restrictions. These clauses function similarly to a non-compete agreement and must be reasonable to be enforceable under Indian law.

⚖️ Legal Framework Governing Franchises in India

India does not have a standalone franchise law. Franchise agreements are governed by multiple statutes:

Indian Contract Act, 1872
Trade Marks Act, 1999
Competition Act, 2002
Foreign Exchange Management Act (FEMA)

Supply obligations in franchise networks are often governed through parallel contracts such as a vendor agreement with approved suppliers.

🔍 Due Diligence Before Signing

Speak with existing franchisees
Review litigation history and brand stability
Analyze exit, termination, and buy-back clauses

If you’re investing with partners or planning multi-unit ownership, align your internal ownership structure using a shareholders agreement before signing the franchise contract.

🤝 How GetLawyer Helps With Franchise Agreements

At GetLawyer, we assist both franchisors and franchisees with:

Franchise agreement drafting and review
Negotiation strategy and risk assessment
Trademark and compliance checks
Exit planning and dispute resolution

Our online legal services for businesses are designed to protect your capital, rights, and long-term business interests.

✅ Conclusion

A franchise agreement shapes your financial future and operational freedom for years. While brand recognition is attractive, legal clarity is non-negotiable.

Before committing, ensure the agreement is fair, enforceable, and aligned with Indian law.

Ready to invest safely? Book a consultation with GetLawyer and protect your franchise investment with expert legal guidance.

Frequently Asked Questions for - Franchise Agreement in India | Rights, Cost & Legal Process (2025 Guide)

1. How much does a normal franchise cost in India?

The cost of a franchise can be very different depending on the brand and the industry. Entry-level franchises can cost between ₹5 and 10 lakhs, while well-known brands can cost between ₹50 lakhs and several crores. Always remember to include ongoing royalty fees, which are usually 5% to 10% of sales.

2. Is it possible to run more than one franchise location with the same contract?

Most of the time, each location needs its own contract or a clear multi-unit clause. Some franchisors let you open multiple locations in a certain area within a certain amount of time through area development agreements.

3. What happens if the franchisor's business goes under?

This should be covered in your agreement. You can usually keep your business going, but you won't get any brand support. Look for terms about trademark rights, relationships with suppliers, and what you can do if the franchisor goes bankrupt.

4. Do you have to register a franchise agreement in India?

There is no specific franchise law in India, so there is no legal need to register a franchise agreement. But trademark licensing may require registration, and if foreign exchange is involved, FEMA requires certain reports to be made.

5. Can franchise agreements be negotiated?

Yes, while franchisors prefer standard terms, there is usually room for negotiation on franchise fees, territory exclusivity, renewal terms, and transfer rights, especially for experienced entrepreneurs or multi-unit agreements.

6. What legal protection do franchisees have in India?

Franchise agreements in India are governed by the Indian Contract Act 1872, Trade Marks Act 1999, Competition Act 2002, and FEMA for international franchises. However, India lacks specific franchise legislation like other countries.

Franchise Agreement in India | Rights, Cost & Legal Process (2025 Guide)

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