INTRODUCTION:
The Franchise Agreement is a legal agreement binding the franchisee with the rights holder. The contract details the franchisor's expectations of the franchisee and how the business is conducted. An agreement in which a franchisee (business) agrees to provide the franchisee (individual or legal entity) with the name of the business or corporate system. Franchising (or franchising) is outsourcing a brand to improve distribution. Merchants must pay royalties and/or initial fees for the right to conduct business on behalf of the merchant and its systems. Technically, the term "franchise" refers to an agreement binding two parties, but it is more commonly used to refer to the actual business of a franchise. There is no specific law governing franchise agreements, but various regulations apply. Some of them are:
Indian Contracts Act, 1872
Consumer Protection Act, 1986
Trademark Act, 1999
Copyright Act, 1957
BENEFITS OF FRANCHISE AGREEMENT:
Define the relationship- This Agreement governs the relationship between Merchant and Merchant, including the benefits and limitations of both parties.
Greater Control for Franchisors- This agreement ensures that the franchisor, as the owner of the business, has greater control over its operations.
Brand Management- The agreement provides the possibility for merchants to decide how to accept business and branding. Penalties for mismanagement or violations of a business brand are always determined to protect the brand's image and reputation.
Franchise Agreements- This must comply with the provisions of the Indian Contracts Act 1872. Under this condition, franchisees may include disclosure requirements as part of their contracts.
Advertising- The copyright holder discloses advertising obligations and fees payable by merchants.
TERMS AND CONDITIONS OF THE FRANCHISE AGREEMENT:
Royalty: The Franchise Agreement describes the franchiser's royalty structure. Franchisees impose conditions such as paying franchisees a flat fee or a percentage of their profits to use their brand name.
Franchise Term: The term determines the duration of the franchise agreement. Franchisees know that they can use the franchisee's trademark to grow the company for a period of time.
Site Selection: A franchise agreement specifies the territory in which the franchise will operate. It designates who owns the trademark and who has the right to use it
Site selection: Site selection is an important aspect of our service. The franchisee is expected to name a few locations where the franchisee's business will be conducted, and the franchisee complete site selection for the next step in the process.
Franchise Fee: Each franchise has its own fee. These fees include initial franchise fees, recurring franchise fees, royalties, and other fees. Late fees and interest are included in this agreement. All necessary costs must also be included in the contract. For example, merchants may be responsible for travel, training, and other expenses.
Operational support: This establishes all operational requirements to be followed in the future. It also specifies what products or services the merchant may offer or sell. The Operational Assistance Clause applies to all purchases that the Merchant must make to the Merchant
Educational Support: The merchant provides educational support to each Merchant. This will help you learn the origins of the underlying company to keep your franchise business running smoothly.
Advertising: The contract shall establish all obligations of the franchisor to support the franchisee through advertising.
Contract Renewal or Termination Conditions: Describe the preconditions and circumstances of the franchise agreement for renewing or terminating the franchise agreement. To protect themselves from any misconduct or breach, the franchisor also includes an arbitration clause.
TYPES OF FRANCHISE AGREEMENT:
1. Unit Franchise Agreement- This is the traditional and most common form of franchising. This kind of agreement establishes the rights and obligations to establish a franchise. He also talks about running a franchise. However, franchisees are responsible for investing their own capital and using management skills to grow their business.
2. Multi-User Franchise Agreement- Rightsholder has the right to issue one or more franchise units to the franchisee. That is, this agreement permits the operation and creation of one or more franchise units. However, for franchises with multiple business units, it is important to have smart financial capabilities that serve as valuable assets for business growth.
3. Master Franchise- In this type of agreement, the franchisor grants rights in a specific country, region, or continent, thereby authorizing the master franchisee to offer all of the franchisor's products and services. Master franchisees also have the right to hire other franchisees. Therefore, the master franchisee becomes an affiliate of affiliates that have joined the system through the main franchise.
ADVANTAGES OF FRANCHISE AGREEMENT:
1. Low rates of failure- Franchises have, on average, lower churn rates than sole proprietors. When a franchisee purchases a franchise, it becomes part of the brand as well as a system to provide help and advice, making it less likely to go out of business. Also, because sellers have built their business model upfront, they can be confident that there will be demand for the goods or services they offer.
2. Profitability- Franchises make more money on average than sole proprietorships. Most franchises have well-known brands that attract a lot of people. Thanks to its popularity, its income is also increasing. Even franchisees with high franchise fees require significant capital investments to generate a positive return on their investments.
3. Built-in customer base- Finding customers is one of the biggest challenges of any new business. A franchise, on the other hand, has an established brand and devoted customers. Even if you're building your first franchise store in a small town, chances are potential customers will learn about your brand from a TV commercial or a trip to a major city.
LAW GOVERNING FRANCHISING IN INDIA:
Indian Contracts Act, 1872 - This Act defines the laws relating to the essential aspects of contracts between franchisor and franchisor. Indian contract law finally establishes the principles of offer and acceptance, consideration, breach of contract, and various related actions.
The Competition Act 2002 - Any contract relating to the production, distribution, acquisition, supply, or control of goods that may adversely affect domestic competition is prohibited by this law.
Consumer Protection Act 1996 - This Act was created with consumer interests in mind. The Act gave consumers the right to file complaints against merchants and merchants. If a product or service is defective, consumers have the right to file a complaint against the device. Consumer protection laws protect consumers from unfair trade practices.
The Foreign Exchange Management Act, 1999 - When there is foreign currency and foreign assets are included this act comes into action. There are many international brands like Reebok, KFC, and Nike, control and manages their franchise in India with this Act and provide relevant information. The Indian government is improvising the laws which will help all the brands in opening and managing their franchise in India.
CONCLUSION:
A well-drafted franchise agreement plays a crucial role in avoiding any disputes that may arise between the franchisor and franchisee concerning the use of the franchisor’s business and Intellectual Property Rights (IPR) or any other terms and condition of their agreement. In the event of a franchise, the franchisee must manage the network with at least two individuals, one of whom must be the franchisee or another partner, shareholder, or designated representative, and devote continuous efforts to developing, managing, and operating the business. This means allocating sufficient time and resources to ensure full compliance with obligations to the franchisor, its clients, and others.
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