INTRODUCTION

 A franchise is the method of expansion and distribution. It involves a franchisor who sets the trademark for the brand. Though in India franchising is a new approach, the history of franchise says that people have been giving franchises since the middle age. In 1840, a Germany based beer company gave rights to individuals to sell its products.[1] In order to purchase a franchise, one needs to make a contract with the brand which is providing the franchise (franchisor).

Some people often get confused between chain stores and franchise stores, but the key difference between them is that the owner of the chain stores is one and in the case of franchise stores the owners are different.

 The franchisor does not personally look into each and every franchise store. Franchises are available in every sector nowadays but service sector companies are the most prominent ones. Some of the famous brands that provide franchise are Subway, Nike, Maruti Suzuki, Apollo Pharmacy, Zara etc. Every brand has its own rules and regulations for granting the franchise.

ALL YOU NEED TO KNOW ABOUT A FRNACHISE AGREEMENT

 A franchisee is an entity who buys the franchise from the franchisor. In order to enforce the contract, the franchisee has to fulfill the needs and wants of the franchisor.[2] The franchisor license’s its trademark and the method and the franchisee purchases the right to use the same and pays royalty in return. The franchisee gets a model from the franchisor that expected to work on all levels whether it be main operation like production or secondary option like marketing. Building a franchise or purchasing an ongoing franchise would make you enter in the market with a readymade name and reputation. The franchise does not have to bear a big cost of marketing like other brands who establish the business from scratch as the franchisor has already been in the market for several years. A franchise agreement consists of how the systems of the franchise are used, how returns are expected, how many rights the franchisee gets and what are the duties of both the franchisee and the franchisor. Also the time of agreement is mentioned and fees is charged for the same. This key points are essential in the agreement as it protects the business. In the case of violation of any point the remedy is also stated in the agreement itself.

 With the franchise agreement the franchisor is provided with the methods and steps to use the machineries, the recipes of product (if any), the usage of system of the franchise. Further some machineries and furniture of the store has to be bought by the franchisee from the franchisor. Training to the employees and uniforms are provided by the franchisor. In case of a multinational brand there are headquarters and the training is provided to the owner of the franchise outlook and examinations (if any) are done at the headquarter of a particular country. The one who wants to purchase the franchise has to contact the headquarter and then request is sent and the details of location, size of store and other important details are sent. Once the franchisor approves the request one has to start the legal formalities and payment of franchise fees. A contract is made and the training and examination process starts.

 Once this step is completed the franchisor starts sending the furniture and machineries. Regular inspection is done in this process. Once setting of furniture and machinery is done, officials come to the store to check if everything is done correctly or not. If everything is up to the mark, then the store is all set to start and if they find some errors then the process of setting up is repeated. Once the store is started, the franchisee has the power of management as well as administration.

PROPER FUNCTIONING OF THE FRANCHISE STORE

The franchisee has to keep records of everything and submit it to the franchisor as per the agreement. The franchisor may allot someone for regular inspections. If in the inspection, it is found that the franchisee is not working properly according to the marks set by the franchisor then the franchisee owner would have to face consequences. A certain percent of share of the stores overall sales has to be provided to the franchisor on weekly/monthly basis as per agreement.

LEGAL ASPECT FROM THE VIEW OF INDIA

In India there is no specific law for franchise and thus the points for franchise can be understood from 13 pre-existing laws like : The Indian Contract Act (1982), The Trademark Act (1999), The Arbitration and Conciliation Act (1996), The Patents Act (1970), The Copyright Act (2013), Transfer of property Act (1882), Indian Labour laws and Consumer Protection Act (2002) etc.[3] The infringement of the agreement of franchise will lead to civil remedies. In case of certain franchise agreements criminal remedies are available.[4] Breaking of franchise is difficult. The legal aspect should be understood clearly and one should keep in mind that there can be some consequences for the same. If a franchisee closes the franchise without the termination of the agreement made between the parties, then the entity would be held liable for the loss of future profits to the franchisor.[5] This means that the entity would be held liable for future profits which would have been made in case the franchise store was not closed. The franchisee can sell the franchise but with the permission of the franchisor only. Some agreements do not allow the transfer of franchise. Hence, termination of the franchise should be a part of the agreement.

CONCLUSION

Franchising is the best option for expansion of business and promoting globalization. International franchising is seen in 160 countries and 70 different business sectors.[1] So in order to make it smooth and for better functioning India should adopt a specific franchise law which should contain the following points:

  • Rules regarding establishment and formation of a franchise and its agreement.
  • Rules regarding Purchasing and selling the franchise.
  • Rules regarding royalty.
  • Remedies for infringement, fraud, mistake, etc.
  • Taxation of franchise store income.
  • International law for franchising internationally.

Keeping in mind the current position of India in the world, it has been a developing country with fast pace and franchising would add to it a lot and the law regarding the same would make it easier. People would come to know more about franchising and the frauds and crimes of franchising are expected to reduce.

[1] Infographic: History of Franchising and Current Franchise Industry Facts, FRANCHISE DIRECT, (May. 14, 2022, 11:46 PM), https://www.franchisedirect.com/blog/infographic-history-of-franchising.

[4] Bird  and Bird LLP, Intellectual Property for Franchises in India,  LEXOLOGY ( Apr. 30, 2022, 7:00 PM),  https://www.lexology.com/library/detail.aspx?g=2f833958-45e8-43d1-9c0b-cbd02be32d82

[5] GARNAR,GINSBURG & JOHNSNE,P.A., https://www.yourfranchiselawyer.com/terminate-franchise-agreement-things-consider/ (last visited May 3, 2022)


About the Author: This post is prepared by Om Amin, Law Student from Navrachna University. He can be reached at om.amin@nuv.ac.in

MyLawman is now on Telegram (t.me/mylawman) Follow us for regular legal updates. Follow us on Google News, Instagram, LinkedIn, Facebook & Twitter or join our Whatsapp group .You can also subscribe for our Newsletter for Email Updates.