What is a Franchise Agreement

A franchise agreement India is a contract where a business person

consents to grant the enterprise name or company system to an
individual or an entity (the franchisee). The franchise agreement
format will characterize the foundation of the terms between both the
consenting groups, define the remuneration for the franchisee
(payment in the way of royalties, for the usage of the business
trademark, etc), mention conditions upon the usage of the brand
name, specify the extent of the agreement, mention terms concerning
disciplinary provisions (varying from financial penalty and
allowances to withdrawal of the business franchise and the contract)
and so on.
A ‘franchise agreement’ is a legal binding contract between a
franchisor and a franchisee. Let us look at the essential characteristics
of a franchise agreement.

Franchise agreements are mostly non-negotiable in nature

 The easiest way to administer the system and to take most out
of a franchisee is to have each franchise on the same program.
Therefore, franchisor makes a similar contract for every
franchisee and mostly they are non-negotiable in nature.
 In practice it is observed that, franchisee often heavily
negotiate. It depends on the bargaining power. Of course
franchisors don’t want to negotiate and they might not have to
if there are large number of waiting takers. However, that is
unusual.

Franchise agreement is full of must dos and don’ts

In a simple reading of any franchise agreement, one can clearly get
the list of things to do and things to strictly avoid in a franchise
business. These rules can help in formulating a business strategy. The
franchise agreement outlines some issues which you are strictly
forbidden from doing. The non-competing clause, which says a
franchisee cannot operate a similar business and other such similar
clauses are discussed below.

What are the benefits of a franchise agreement?

Certain benefits of a franchise agreement India are mentioned below-

Defines The Guidelines
A franchise agreement permits the businessman (who is franchising
his company) to define guidelines for the maintenance of quality
related to different facets of the trade before onboarding the client and
binding them in a franchise contract.
Brand Management
With a franchise agreement format in place, the franchisor can set
guidelines for how the franchisee adopts the business and branding.
Also, the penalties for mismanagement or violation of the business
branding are defined in the agreement to protect the brand name at all
times.
Guidelines of a Franchise Agreement

What should a franchise agreement include?(Checklist)

The most essential elements of a franchise agreement sample are
mentioned below-
Franchisor-franchisee details and relationship
The details of the franchisor and franchisee and their relationship are
outlined at the very beginning of the franchise agreement draft.
Agreement duration
It is the decided tenure of the franchisor-franchisee relationship. The
duration can be extended if both parties wish to continue the
relationship further.
Franchisee fee and related matters
Matters related to franchisee fees, royalties, deposits, etc, along with
their due dates and modes of payment are discussed in a separate
segment. These considerations will be as per discussions between the
franchisor and the franchisee before the signing of the agreement.
Site selection & development
It is the responsibility of the franchisee to find out a suitable location
for its business unit and obtain the approval of the franchisor, before
signing the agreement. The detailed requirements of the location and
the specification of the business unit must be mentioned in this
section.
Business operations
This section will include detailed information about the support to be
extended by the franchisor and the responsibilities of the franchisee.
Some of the areas covered here will include-
 The operation of the franchisee unit, as per the operating
standards set by the franchisor
 The goods and/or services the franchisee is allowed to offer
 The goods and/or services the franchisee needs to purchase
exclusively from the franchisor
Branding and advertisement
This section of the franchise agreement mentions the responsibility of
the franchisor to spend in branding and promotional activities to help
the business. The responsibility of the franchisee towards brand
building activities is also mentioned in clear terms.

Intellectual property and trademark

This section mentions the use of intellectual property (patents,
trademarks, manuals, etc) of the franchisor by the franchisee. It also
has clauses to prohibit the use of such assets by the franchisee after
the termination of the franchise agreement.
Training and support
It is the responsibility of the franchisor to provide the required
support, training, and supervision to the franchisee. Details regarding
this are mentioned clearly in this section.
Termination clause
This clause includes detailed provisions related to the termination of
the franchise agreement if either party fails to perform as per the
terms mentioned in the agreement. It will also mention the
fines/penalties applicable and the liabilities of the parties involved
after the termination of the agreement.

What is the process of preparing a franchise agreement

3 Business Days
Upon contact, your request to prepare a franchise agreement will be
received and our representative will be in touch with you to take your
request forward. If we need more information from your end, we will
call you as and when required. After we receive all your details, our
in-house lawyers and legal experts, will create the franchise
agreement draft and send it across for your view within 2- 4 business
days.
2 Business Days
Your original price includes two rounds of iterations. Therefore, if
you need any changes done to the franchise agreement sample, our
lawyers will do the needful and send it across to you for your
approval once again.

Relevant clauses in a franchise agreement

Franchise agreement clauses differ from business to business. There
are few common areas which these agreement addresses. These are,

     Term and renewal

     Fees and royalty clause
     Proprietary marks
     Confidentiality clauses
     Training
     Duty of Franchisor
     Duty of Franchisee
     Default and Termination
     Products and operations standard and requirements
     Advertising
     Dispute resolution
     Post-term obligations

Term and renewal

Term and renewal clause contain the time duration for the initial term
of a franchise agreement. Under this section, a franchisee is obliged to
operate the franchised unit for the specified period in the agreement.
The renewal clause provides the opportunity for the franchisee to
continue with the franchise and notify within stipulated time.
Fees and royalty clause
This clause mentions the non-refundable franchise fees which the
franchisee has to make to the franchisor and also the one-time fees if
any. Royalty clause is the non-refundable portion of the payment
(usually in percentage) which the franchisee are obliged to make to
the franchisor. An example of this is, royalty can be 8% of the gross
sale to be paid weekly. The period of royalty can be weekly or
monthly depending on the nature of the contract.

Proprietary marks
The franchisee is granted to use Franchisor’s Proprietary Marks only
in connection with the operation of the franchised unit in the
Franchise Agreement at the location where such franchise is settled.
An owner of a Nike showroom cannot use Nike’s Proprietary mark at
any other place except the store.

Confidentiality clause

 All franchise have manuals which contain specific

confidentiality clause to which the franchisee are to abide. To
protect the reputation and goodwill of Franchisor and to
maintain uniform standards of operation, a franchisee is  to
abide to the norms of the franchised business by accepting the
Franchisor’s Confidential Operating Standards Manual.
 The information provided in the manual is to be kept a secret.
 Manual contain information relating to patent and product
design, service information, statistics of the franchisor and
other useful information relating to the business.

Training
Before you open your franchisee, specified number of key holders of
your franchise are required to attend and complete the franchise
training program. Key holders of the franchise might include the
franchisee, an Above Store Leader, General Manager or Assistant
Manager. The time duration of the training along with the place where
training will be conducted is specified in this clause. There might be a
stipulated fee for the training and the franchisee is responsible for all
costs incurred including travel and lodging of the management team.

Duty of Franchisee
Duties of the franchisee are specified, and they are expected to
maintain high and uniform operating standards. Clause contains duty
such as,

 To maintain the premises of franchised unit in conformity

with the standards. These includes equipment, signs, fixtures,
furnitures and other infrastructures.
 Duty to maintain the reputation and the goodwill of the brand.
    It is the responsibility of the franchise to meet and maintain
the highest standards and an obligation to maintain the
standards and ratings applicable to the operation of the
Franchised Business.
 A duty to maintain the supply of goods at all the times.
 To use the premises of the Franchised Unit solely for the
purpose of conducting the business franchised.
 Duty to advertise the brand.

Duty of Franchisor
Among various duties, few duties which the franchisor owe towards a
franchisee are,
   The franchisor will make available to franchisee continuing
advisory assistance in the operation of the Franchised
Business.
   It is the duty of the franchisor to make available to
Franchisee standard plans and specifications to be utilized
only in the construction of the franchised unit.
    Franchisor will continue its efforts to maintain high and
uniform standards of quality, cleanliness, appearance and
service at all franchised unit.

Default and Termination

The clause contains conditions which will automatically terminate the
franchise agreement. Few examples of such conditions are,

 If a petition for bankruptcy is filed by franchisee or such a

petition is filed against Franchisee and not opposed by
Franchisee,
 Franchisee is adjudicated bankrupt or insolvent,
 If proceedings for a composition with creditors under the
applicable law of any jurisdiction should be instituted by
Franchisee or against Franchisee and not opposed by
Franchisee.
 The Franchise Agreement might get terminated when the
Franchise does not abide by the rules such as maintaining of
standards and other infrastructural maintenance clause.

Products and operations standard and requirements

 The following clause makes it mandatory for the franchisee to

abide by the products and service standard and requirements
as directed by the Franchisor.
 A restaurant franchise includes the following clause relating
to Products and operations standard and
requirements.”Authorized Menu. Your business must be
 confined to the preparation and sale of only such Menu Items
and other food and beverage products as we designate and
approve in writing from time to time for sale by your
Restaurant.”

Advertising clause
“You agree to actively promote your Franchise, to abide by all of our
advertising requirements and to comply with the norms set for
advertising.” An advertising clause begins this way.

 An advertising fee is set which the franchisee is bound to pay

to the franchisors.
 The Franchisor saves the right to determine the expenditures
of the amounts collected and the methods of marketing,
advertising, and media employed and contents, terms. The
franchisor and conditions of marketing campaigns and
promotional programs.

Dispute resolution
Dispute resolution clause mentions which court to appear in a case of
conflict between the Franchisor and the Franchisee. Nowadays, a
Franchise Agreement contains an arbitration clause specifying the seat
of arbitration and the institution to appear in case of disputes.

Post-term obligation
Upon the expiration or termination of the Franchise Agreement, the
Franchisee still owes obligations toward the Franchise. Examples of
such obligations are,

 Discontinuation of Trademark use. Upon the expiration of the

agreement, a franchisee is debarred from using the trademark
of the Franchise.
  Purchase Option. The Franchisor reserves the right to
purchase or designate a third party that will purchase all or
any portion of the assets of the franchised unit including,
without limitation, the land, building, equipment, fixtures,
signage, furnishings, supplies, leasehold improvement.

Exclusivity clause (Restricting franchisor from setting up of same

franchise nearby the already existing franchise)

 A point to note before proceeding, there are many franchisor

which do not include the exclusivity clause in their contract.
 A majority (but by no means all) of franchise agreements
contain some sort of exclusivity for franchisees – clauses
which prevent the franchisor from appointing another
franchisee in the franchisee’s territory.
 A reason why franchisors are reluctant to grant exclusive
territories is that it is often difficult to terminate an
underperforming franchisee but it may be easier to place
another franchisee near to the under performing franchisee
with a view to encouraging the underperforming franchisee to
perform or simply to service the territory properly.

Few common Franchise businesses in India

There are various types of franchise such as single retail franchise
(Nike, Puma, Bata) and multi retail franchise (Big Bazaar,
Pantaloons.)

Restaurant franchise in India

 Barbeque Nation, Moti Mehal, Haldiram, are few of the most

common franchise in India. They have occupied a unique
place in the food industry.
 Macdonald even changed their menu and removed beef from
it just for India.
 KFC, Burger King, Subway are again big players in the field.
 The industry’s supply chain is fragmented in nature and
marked by the presence of multiple intermediaries. The lack
of appropriate infrastructure, inadequate technologies, and
non-integration of the food value chain are the key factors
leading to the nearly 30-40% food wastage across to supply
chain [5].

Hotel franchise in India

 It is a dream of every middle class employee to have a

vacation stay in any of the Radisson or Hyat franchise in
India. These are to name just few big players in the industry.
The hotel industry is too flourishing in India.
 In today’s competitive and global hotel market, being part of
a group of hotels that share a recognized brand and provide
services such as a central reservation system, marketing, and
defined operational procedures might mean the difference
between financial success and failure.

Playschool franchise in India

 Playschools such as Bachpan, Euro Kids, Junior, are few of

the big players to name.
  Educational services can be a rewarding career field for
entrepreneurs who want to make a difference and make
money. It is a major part of the franchise industry with plenty
of business opportunities for prospective investors.

Clinics and Nursing Home franchise in India

 Hospitals such as Fortis, Skinlab, Dr Batra are the big players

in the field.
 When the whole world is undergoing an economic crisis, the
health industry was amongst the least hit sectors. Here, the
business opportunities are more & the risk is less.

Gym Franchise in India

 Gold Gym, Fitness Mantra, Chisel are the big players in the
field of fitness.
 In the USA, the membership in fitness clubs is 16%, while in
India it’s just 0.4% in top 7 cities. This predicts huge business
potential in this sector. A recent study by the FICCI and Ernst
& Young predicts that the fitness industry is growing @30-35
% annually and is worth 110 billion (approx).

Sample Franchise Agreement

FRANCHISE AGREEMENT
This agreement is signed on this 16th day of January, the year 2017.

Between

………………………………………………………., a private
limited company incorporated under the company’s act 1956, and
having its corporate office at …………………………….., India,
herein after referred to as the “Franchiser” which expression shall
unless repugnant to the contest or meaning thereof include its
successors and assigns of ONE PART.

And

………………………………………, a proprietary firm having its

……………………………, and represented
by ……………………………, S/o ……………………………, aged
about ….. years, hereinafter referred to as the “Franchise” which
expression unless repugnant to the context or meaning thereof be
deemed to include, legal representative, executors, administrators,
successors and permitted assigns of the other PART, each a party and
collectively referred to as parties.

Both parties as above have expressed a desire of entering in to a

franchise agreement to meet their respective objectives, which are set
out here in below,

a)     ………………………. on its part has entered into the business

of Online Ads, Offline Ads, Value Added Services and Premium
Services and is interested in furthering this business through
“Franchise” (Conductor) operated Signature:                                                          

 …………………. outlets on national basis maintaining a uniform

standard facilities and services including uniformity in the charges
levied from the customers for rendering the specified services.
b)“Franchise” on his part is interested in entering into the business of
operating as a service provider through their cyber cafe outlet and
thus carrying out the business of providing services to the customers.

c)…………………………… is desirous of appointing “Franchise” to

conduct, manage and operate the services through the …………… as
per the uniform norms set up by ………………… in respect of nature
of services and cost of services to the customer.

d)“Franchise” is desirous of taking over the services offered by

……………………., for the purpose of its operations and
management to carry out business on the terms and conductions
contained herein.

e)The purpose of this Agreement is to set forth the terms and

conditions under which the parties to the Agreement shall conduct
themselves during the substances of Agreement.

NOW, THEREFORE, the parties, in considerations of the convents,

undertakings, and commitments set forth therein here by mutually
agree as follows,

Section 1: Definitions and Interpretations

For the purpose of this agreement, the following expressions shall

bear the respective meaning set forth below,

Details of terminology for the services to be provided

Section 2: Grant of the Franchise

1. The “Franchise” warrants and represents to

…………………… that it is a company / firm, validly
existing and a good standing under the laws of republic of
India and has all requisite power and authority to enter into
this agreement with …………………. All the obligations of
the “Franchise” under this agreement are legal, valid and
 binding obligations enforceable in accordance with its terms.
There are no proceedings pending against the franchise,
which may have an advice effect on the ability of the
franchise to perform and meet its obligations under this
agreement.
2. On consideration of the “Franchise’s” applications and
relying on such assurances and representations that
“Franchise” has made to …………………………….,
………………… appoints the franchise as a franchise on the
terms and conditions set forth in this agreement and in the
website.
3. There is no product and/or service and/or territorial
exclusivity granted to the “Franchise” as part of this
Agreement by …………………… may give such right or a
similar right to persons other than “Franchise” to sell
…………………. products and services anywhere including
geographic, area surrounding the premises.

Section 3: Services, Terms & conditions

1.     ……………………………… would provide their entire

range of services by own or through the service providers
which includes online ads, offline ads, value added services
and premium services to the “Franchise”.
2.     “Franchise” will act as a single point e-hub for all the
services provided by ……………………………… falling
within the purview of this agreement.
3.   The entire business being on pre-payment basis,
……………………………… will supply all the services
based upon requests from “Franchise” up to limits available
for “Franchise”. Such limits will be equivalent to the funds
available from “Franchise” with
……………………………… at any point in time and will
keep reducing with every transaction corresponding to the
value of transaction. ……………………………… will
 enhance the limit of Franchisee by amounts received by it
from “Franchise” from time to time.
4.   ……………………………… will publish commission
structure and earning of the ”Franchise” from time to time in
the web site ………………………………. The details of all
transactions done by “Franchise” will be available on the
web, login ID and password of which will be provided to
“Franchise” by ………………………………. “Franchise”
will keep enough funds with ……………………………… so
as to cater all transactions to provide services to the
customers.
5.   All the services falling within the purview of this agreement
will be made to “Franchise” based upon standard conditions
of sales as set by ……………………………… for all its
“Franchise” outlets from time to time. Such conditions will
generally be in line with conditions that are placed upon
……………………………… by various service providers
and also as a result of business decisions, legal and
contractual requirements.
6.   ”Franchise” will keep providing the services within the
purview of this agreement through their outlets exclusive with
………………………………. ”Franchise” will not enter into
direct agreements with any other services providers,
aggregators, distributors or any similar entity in India for this
purpose, for the duration of this agreement.
7.   The Intellectual Property rights including the concept of
delivery of services will rest with
……………………………… or its suppliers or service
providers.
8. ……………………………… and ”Franchise” shall conduct
their business at all times, in accordance with the applicable
statutes, regulations, notification etc., Issued by the
Government or any other statutory authority.
Section 4: Confidentiality
 1.   “Franchise” shall keep all information of confidential nature
received from the ……………………………… in whatever
form as strictly confidential and shall not disclose it to third
Parties without the prior written consent of
……………………………… during the term of this
Agreement.
2. “Franchise” agrees not to disclose revenue Information
without ……………………………… prior written consent.
Section 5: Limitation of liability

The Parties shall not be liable for any incidental, special, indirect or
consequential damages arising out of or relating to this Agreement.

Section 6: Terms

This Agreement comes into force on the date of signing this

Agreement and shall continue for one (1) year after this date. This
agreement may be extended on the mutual agreement of both parties,
unless earlier terminated in accordance with the agreement by paying
renewal fee to ……………………………… by “Franchise”.

Section 7: Termination

1.   This agreement may be terminated by either party at any

time, without assigning any reason by giving prior written
notice of ninety (90) days.
2.   ……………………………… shall be entitled to terminate
this agreement, with immediate effect upon happening of one
or more of following:
3. Any breach or violation of any of the terms and conditions of
this agreement by the “Franchise”, if within seven (7) days of
written notice from RMS E-Services India Pvt. of the breach
or violation, such breach or violation is not cured, provided
that no cure period shall be applicable for the violation of any
applicable law.
 4. Failure of the “Franchise” to provide the services to the
customers as per the expectations of
……………………………….

Section 8: Applicable Law

This agreement is governed by and constructed in accordance with the

laws of India.

Section 9: Dispute Resolution and Jurisdiction

1.   Any dispute, controversy or claims arising out of or relating

to this Agreement or the breach, termination or invalidity
thereof, shall be settled by arbitration in accordance with the
provisions of the [Indian] Arbitration and Conciliation Act,
1996.
2.   The arbitral tribunal shall be composed of three arbitrators,
one arbitrator appointed by ………………………………, a
second arbitrator appointed by “Franchise” and a third
arbitrator to be appointed by such arbitrators.
3.   The place of arbitration shall be at ……………… and any
award whether interim or final, shall be made, and shall be
deemed for all purposes between the Parties to be made in
……………………..
4.   The arbitral procedure shall be conducted in the English
language and any award or awards shall be rendered in
English. The procedural law of the arbitration shall be Indian
law.
5.   The award of the arbitral tribunal shall be final, conclusive
and binding upon the Parties, and the provisions of the
[Indian] Arbitration and Conciliation Act, 1996 shall apply.
6.   The rights and obligations of the Parties under, or pursuant
to, this Clause, including the arbitration agreement in this
Clause, shall be governed by and be subject to Indian law, and
 the agreement shall be subject to the exclusive jurisdiction of
the courts at Hyderabad.
This Agreement has been executed on the date set forth herein in two
(2) copies of which the Parties have taken one each.

For ………………………………,                                 For

……………………………….

Authorized signatory
Authorized signatory

                                                                            

Witness 1                                                                             Witness 1

                                         

Signature:                                                                           Signature:

Name      :                                                                               Name     :

Address   :                                                                           Address  :

Witness 2                                                                              Witness 2

                                                     

Signature:                                                                               Signature:

Name      :                                                                               Name :

Address   :                                                                               Address  :