What is a Franchise Business? And Legal Aspects of Franchise Business in India

Introduction

The franchise business model is now emerging as an appealing business option for prospective entrepreneurs, whether for its profitability, the variety of options available, or the reputation that comes with the brand chosen. As readers maybe aware, franchising is the process by which an entity (also known as a franchisor in this context) allows existing or would-be entrepreneurs to use the franchisor’s business model in another location for a set period of time. Here, in this article information on legal aspects of Franchise Business in India is mentioned.

What is a Franchise Business?

It is one of the main ways that foreign companies and brands have grown stronger in the Indian market. A franchisor (franchise brand) is involved in the process and offers the franchisee (owner of the franchise outlet) conceptual, structural, legal, and training support in exchange for an upfront start-up fee and royalty payments.

Both the franchisor and the franchisee earn from owning and operating a franchise. The franchisor can further extend the business in untapped markets, thereby boosting the market share and revenues, after the franchisee has access to the brand’s devoted customer base, legal counsel, creative support, and training support. The most valuable and practical type of business opportunity is franchising.

Legal Aspects of Franchise Business in India

1. Intellectual property

• Trademark

A Trademark is a company’s identity. It is the name under which the company operates. A brand can be a name, a logo, a tag-line, or a combination of these elements. Customers have goodwill and trust in a trademark. The franchisee uses this goodwill and trust to grow their own business. This law safeguards the franchisor’s trademark rights.

• Copyright

Copyright refers to the creator’s exclusive right to use and license any original artistic content. A franchisor may license a brand’s musical jingle, some interesting written content as marketing material, a video movie as an advertisement, or something to engage customers. Any transaction involving the exchange or licensing of copyrighted material is subject to the provisions of the Copyright Act.

• Patent

A Patent is an original invention or innovation by a person or organization that has been duly registered under this act and is protected by the provisions of this act for its uniqueness. A Patent gives a company a competitive advantage in the market. It distinguishes the manufacture and delivery of a product or service in terms of utility and customer experience. So, if operating a franchise entails access to the franchisor’s patents, the provisions of this act govern the exchange of patent-related information. Alternatively, a franchisee may offer some personal patent to improve the franchisor’s product in exchange for the use of the franchisor’s brand name.

2. Franchise Agreement for setting up franchise business in India

A franchise agreement is the foundation of a franchise, aside from the obvious requirements of finance, infrastructure, and other necessities. The format, control, type of franchisor, and other factors influence the type of agreement used for this purpose.

Franchise agreements must be in accordance with the Indian Contract Act of 1872. Franchisees may include disclosure requirements in their contracts, subject to this condition. In this case, the franchisor’s misrepresentation allows the franchisee to file civil damages claims as well as criminal charges for misrepresentation of facts and criminal breach of trust.

3. Income Tax and GST Act

For tax purposes, a franchise is considered an independent entity and must register for a PAN and TAN separately in order to file its annual income tax returns. It must also register with the Goods and Services Tax Act in order to collect GST from its customers.

4. Resolution of Disputes in a Franchise Business

This is important from the perspective of a franchise because a franchise is typically opened in a location other than the original brand’s outlet. That is the guiding principle of a franchise. The franchisee can benefit from the franchisor’s brand power, and the franchisor can open more outlets in remote locations without incurring any business risk or investment. Given that the two parties to a franchise business agreement are almost always in different geographical locations, the laws governing disputes and claims may differ between the two. As a result, the parties must agree on the jurisdiction under which the agreement falls so that, in the event of a dispute, each party knows how the dispute will be resolved.

Conclusion

For franchises, there is no one go-to act. A franchise maybe subject to different laws depending on the circumstances. As a result, it is critical for an entrepreneur to understand certain legal aspects of establishing a franchise business in India.