Franchise Business in a Nutshell: Best Corporate Lawyer Advice on Franchise Business in India
“Establishing and running a franchise business is a very complex task and the same requires a lot of legal compliances. Entrepreneurs start their own franchise or opt for becoming a franchisee in a haste and without any legal consultation and/or legal advice and then loose their hard earned money or enter into legal issues and legal problems. Thus, a proper legal consultation from the best corporate lawyer having vast experience in dealing with franchise business is necessary. A startup can also commence a franchise business but only after obtaining due legal advice for startup.”
Nowadays we see everywhere the word “Franchise” or advertisements on different social media platforms including on billboards to opt for a franchise and commence business. Whereas things look lucrative and scintillating projections are showcased in the Project Reports but the Entrepreneur or the Businessman has to understand the entire concept of “Franchise” in detail. The best legal advice for a franchise business is to start only once it is sure.
What is a Franchise and how does the Franchise Model actually works?
A “Franchise” is a business model by way of which an existing business model agrees to shared its brand name, logo, know-how, skills and other non-monetary peripherals and techniques which includes Proprietary Information with another Entrepreneur against a fixed franchise fee and/or variable royalty. The Entrepreneur who owns the business is known as the “Franchisor” whereas the person with who the information is shared is known as the “Franchisee” respectively.
Who owns the Franchise Business?
It is the Entrepreneur or the Franchisor who has commenced the business who actually owns it whereas the Franchisee only has a limited rights which is/are assigned to him/her by the Franchisor by way of the execution of a Franchise Agreement.
Is it necessary to register Franchise Agreement?
It is advisable to always duly execute a registered Franchise Agreement before entering into the franchise business. The registration of a Franchise Agreement gives the entre transaction more sanctity and a better enforceability in the Courts as compared to an agreement which is not registered.
What happens if the Franchisor fails to support the Franchisee and fails to discharge its Obligations?
It has been lately observed that sometimes a Franchisor after taking the franchise fees and after an elapse of time fails to discharge its obligations attached to the Franchise Agreement and then the Franchisee is left in a lurch without any support. In these circumstances the Franchisee has the following option which can be duly opted
1. Initiate appropriate legal proceedings under the commercial and/or business laws and seek the recovery of the franchise fees along with compensation and/or damages.
2. Initiate appropriate legal proceedings under the civil laws i.e. for the specific performance of the contract whereby directions may be obtained from the Court against the Franchisor for the discharge of its obligation as mentioned in the Franchise Agreement respectively.
How to go ahead with the Termination of a Franchise Agreement?
Any party i.e. the Franchisor or the Franchisee can have an option mentioned in the Franchise Agreement which shall state the exact tenure of the Franchise. Furthermore, the Franchisor or the Franchisee always have an option to terminate the franchisee by duly serving a prior written notice to the other party with respect to their clear intention to terminate the franchise and/or the Franchise Agreement respectively.
What are the Legal Compliances upon the Franchisee post the Termination of the Franchise Agreement?
Once the franchise comes to an end or the Franchise Agreement is terminated the Franchisee is under a direct obligation to stop the usage of the brand name, logo and mark of the Franchisor, with immediate effect. Further, the Franchisee is duty bound to return back all the materials back to the Franchisor which actually belongs to the Franchisor and was assigned to the Franchisee. Both the Franchisor and the Franchisee are duty bound to reconcile the books of accounts and to clear each other’s outstanding dues without any delay and/or default.
A franchise business has to be duly compliant to the business laws of India and the corporate laws of India. Many franchise businesses are entering India and/or making their India entry through Foreign Direct Investment in India or FDI in India and are making their business a success.
Thus, the myth that the franchise business is a simple business wherein the legal compliances is/are way too less is busted. The franchise business runs around lot many legal compliances and a lot of laws are applicable upon the same. Having said that, every business including the franchise business has its own set of pros and corns and the same have to be well weighted before the commencement.
Authored By: Adv. Anant Sharma