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Franchise Agreement in India – Complete Legal Guide, Clauses, Fees & 2026

A Franchise Agreement is a legal agreement under which a franchisor permits a franchisee to operate a business using the franchisor's brand, trademarks, business model, know‑how, operating system, products, services or other intellectual‑property and commercial rights, subject to specified conditions.

Unlike a simple trademark licence, a franchise relationship normally involves a broader business arrangement including access to the brand, business methods, training, technology, marketing systems, supply chain and ongoing support. We assist brands, companies, startups, LLPs and prospective franchisees with drafting, structuring, royalty clauses, territory protection, GST/TDS compliance and termination provisions.

Franchise Drafting

Trademark / IP

Royalty & Fees

Territory

GST / TDS

Termination

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Indian Contract Act, 1872 Trade Marks Act, 1999 Competition Act, 2002

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Overview

What Is a Franchise Agreement?

A Franchise Agreement is a contract between a franchisor (the brand/business‑system owner) and a franchisee (the person/entity authorised to operate under that system). The agreement can provide the franchisee with rights relating to brand name, trademark, logo, business model, operating methods, products, services, technology, training, marketing materials and know‑how. In return, the franchisee pays fees, royalties and other charges as per the contract.

Brand & Business System

The franchisee gains the right to operate under an established brand with proven systems, training and support.

Intellectual Property Rights

Trademarks, copyright, trade secrets, software and know‑how are licensed subject to strict quality control.

Financial Obligations

Initial franchise fee, ongoing royalty, marketing fees and other charges are clearly defined.

Trade Marks Act1999 – Section 30

Legal Framework

Major Laws Relevant to Franchise Agreements

Franchising is a recognised commercial model in India. There is no single central "Franchise Act"; instead, multiple laws apply depending on the business.

Indian Contract Act, 1872

Fundamental contract law: offer, acceptance, consideration, capacity, consent, lawful object, performance and breach.

Trade Marks Act, 1999

Governs brand name, logo, trademark licensing, quality control, infringement and enforcement.

Protects training manuals, marketing materials, software, graphics, videos and website content.

Competition Act, 2002

Regulates restrictive practices, territorial exclusivity, resale‑price maintenance and supplier restrictions.

Consumer Protection Laws

Product quality, advertising, refunds and consumer complaints – allocation of responsibility between franchisor and franchisee.

GST Laws

Franchise fees, royalty, training, marketing, technology and product supplies – each may attract GST.

Income‑Tax / TDS

Payments for royalty, technical services, commission and services can attract TDS at varying rates depending on the nature and status.

FEMA (for International Franchises)

Cross‑border payments, royalty remittances, transfer pricing, and compliance with RBI/FEMA regulations.

The Competition Act expressly recognises agreements concerning intellectual‑property rights such as trademarks, licences and franchises. Sector‑specific regulations may also apply (e.g., FSSAI for food, education regulations for coaching centres).

Franchise Models

Main Types of Franchise Agreements

Product Distribution Franchise

Business Format Franchise

Manufacturing Franchise

Service Franchise

Master Franchise

Area Development

Single‑Unit Franchise

Multi‑Unit Franchise

International Franchise

Product distribution focuses on selling products; business format includes the complete operating system; manufacturing allows production using the franchisor's formula/technology; service franchises deliver services under the brand; master franchisees develop entire territories and may sub‑franchise; area development requires opening multiple units within a timeline.

Essential Elements

Important Clauses in a Franchise Agreement

A professionally drafted Franchise Agreement should be much more detailed than a basic business contract. Key clauses include:

• Parties Clause (Franchisor & Franchisee)

• Recitals / Background

• Grant of Franchise

• Trademark Licence

• Territory & Exclusivity

• Franchise Fee

• Royalty (calculation, rate, definition of gross sales)

• Marketing Fee

• Technology Fee

• Training (initial & refresher)

• Operations Manual

• Location / Site Approval

• Site Development & Fit‑outs

• Supply of Products / Approved Suppliers

• Quality Control

• Audit & Inspection

• Books, Records & Reporting

• Advertising & Digital/Online Sales

• Customer Data & Privacy

• Intellectual Property (IP)

• Confidentiality & Trade Secrets

• Non‑Disclosure

• Non‑Compete (with Section 27 caution)

• Employee Restrictions

• Compliance With Laws

• Licences & Approvals

• Insurance

• Indemnity

• Limitation of Liability

• Term & Renewal

• Performance Requirements

• Default & Cure Period

• Termination (including immediate termination)

• Post‑Termination Obligations

• De‑Branding

• Inventory / Equipment After Termination

• Transfer / Assignment / Change of Control

• Dispute Resolution

• Governing Law & Jurisdiction

• Force Majeure

• Notices, Amendment, Severability

Each clause must be tailored to the specific franchise model. For example, a restaurant franchise needs detailed recipes and supplier clauses; a technology franchise needs software licensing and data protection.

Franchise Fee vs Royalty

Franchise Fee: Initial/one‑time fee paid for obtaining franchise rights.
Royalty: Ongoing payment, usually based on sales/revenue or fixed amount.
Marketing Fee: Contribution toward advertising and promotional activities.

Example: Initial Franchise Fee ₹5,00,000 + Royalty 6% of Gross Revenue + Marketing Fee 2%.

Territory & Exclusivity

Exclusive Territory: Franchisor will not open another outlet within defined boundaries.
Non‑Exclusive: Franchisor may operate or licence others in same area.
Area Development: Franchisee must open multiple units within set timeline.
Master Franchise: Rights to develop territory and grant sub‑franchises.

Territory clauses must also address online/digital sales and delivery zones.

Intellectual Property & Trade Secrets

Trademark: Brand name, logo, trade dress – licensed with quality control.
Copyright: Manuals, software, marketing materials.
Trade Secrets: Recipes, formulas, customer acquisition systems, pricing, supplier lists.
Know‑how: Operating procedures, business methods.

Background IP and new IP developed during the franchise relationship should be clearly distinguished.

Competition & Non‑Compete

Section 27 of the Indian Contract Act restricts agreements in restraint of trade.
Broad non‑compete clauses (e.g., "never compete anywhere in India") may face enforceability issues.
Restrictions should be narrowly tailored to legitimate business interests and reasonable duration/geography.
During‑term non‑compete is generally more acceptable than post‑termination.

Supplier restrictions and resale‑price maintenance also require competition‑law review.

Sector‑Specific

Franchise Agreements for Different Businesses

Restaurant / Food

Menu, recipes, kitchen design, FSSAI, food suppliers, packaging, hygiene, delivery platforms, POS.

Salon / Beauty

Brand, interior design, product suppliers, training, service standards, customer data, pricing, equipment.

Education / Training

Curriculum, course material, brand, teachers, training, student data, marketing, certification, fees, royalty.

Retail Store

Store design, products, inventory, suppliers, pricing, POS, brand, marketing, territory, returns, customer data.

E‑Commerce / Digital

Website, marketplace, online territory, customer data, digital marketing, technology, delivery, returns, cybersecurity.

Service Business

Service standards, staff qualifications, training, customer complaints, quality assurance, pricing, territory, software, data, insurance.

International Brand Entering India

Trademark licensing, royalty, technical know‑how, cross‑border payments, withholding tax, FEMA, transfer pricing, import restrictions, GST, master franchise structure.

Sector‑specific regulations (e.g., FSSAI for food, education regulations, local municipal licences) must be independently complied with by the relevant party.

TDS on Franchise Payments

Payments for royalty, technical services, commission and contractual services may attract TDS at varying rates (e.g., 10% for royalty, 10% for technical services for residents). International payments may have withholding tax under Section 195. The exact rate depends on the nature of payment, residential status and tax treaty.

GST on Franchise

Franchise fees, royalty, training, marketing, technology support and product supplies are generally taxable supplies under GST. The agreement should clearly state whether amounts are inclusive or exclusive of GST (e.g., "Royalty plus applicable GST").

Stamp Duty & Registration

Stamp duty on Franchise Agreements is State‑specific; no uniform rate. A normal franchise agreement does not automatically require registration, but if it also creates or transfers rights in immovable property (e.g., a lease), that part may attract separate registration and stamp duty.

Do not assume a fixed GST or TDS rate for all franchise payments – the correct treatment depends on the actual nature of the supply/payment and the parties’ status.

Step‑by‑Step Process

Franchise Agreement Process

Verify Franchisor & Franchisee

Check legal status, trademark ownership, financials, experience, and proposed location/management.

Finalise Model & Commercials

Decide single‑unit, multi‑unit, master, or area development; agree on fees, royalty, territory, term and renewal.

Draft & Review

Prepare detailed Franchise Agreement, including IP, quality, supply, training, termination, GST/TDS, and competition‑law review.

Stamp, Execute & Launch

Stamp the agreement (if required), execute, complete related documents (lease, trademark licence, NDA), and commence operations.

Documents Required

Documents for Franchise Agreement

Franchise Agreement Draft

Franchisor Incorporation / PAN / GST

Franchisee ID / PAN / GST

Trademark Registration / Application

Operations Manual (confidential)

Supplier / Product Agreements

Site / Lease Documents

Board / Partner Authorisation

Licences / Regulatory Approvals

For international franchising, additional documents may include FEMA approvals, transfer‑pricing documentation, and tax treaty declarations.

Pre‑Signing Checklist

Franchise Agreement Checklist

☐ Franchisor identity & incorporation verified

☐ Franchisee identity & financials verified

☐ Trademark ownership confirmed

☐ IP rights (copyright, software, know‑how) identified

☐ Franchise model clearly defined

☐ Territory defined (exclusive/non‑exclusive)

☐ Initial franchise fee specified

☐ Royalty calculation & rate defined

☐ Marketing fee structure specified

☐ Technology / other fees specified

☐ GST treatment (inclusive/exclusive) clarified

☐ TDS applicability reviewed

☐ Term (start/end date) specified

☐ Renewal terms (notice, fee, conditions) included

☐ Location / site approved

☐ Training obligations specified

☐ Operations manual provided

☐ Supplier / product rules defined

☐ Quality standards & audit rights included

☐ Reporting & record‑keeping defined

☐ Confidentiality & IP clauses included

☐ Customer‑data responsibilities defined

☐ Advertising & digital sales addressed

☐ Compliance & insurance requirements included

☐ Indemnity & limitation of liability included

☐ Default & cure period specified

☐ Termination (including immediate) defined

☐ Post‑termination de‑branding obligations included

☐ Transfer / assignment restrictions included

☐ Non‑compete (post‑term) carefully reviewed

☐ Dispute resolution (arbitration/courts) included

☐ Governing law & jurisdiction specified

☐ Force majeure clause included

☐ Stamp duty checked

☐ Registration requirement checked

☐ All parties signed & copies retained

Avoid These Errors

Common Franchise Agreement Mistakes

No clear territory definition

Unclear royalty calculation (e.g., "5% royalty" without defining revenue)

No clause for online/digital sales

Weak trademark / IP protection

No post‑termination de‑branding clause

Overly broad non‑compete (Section 27 risk)

No performance targets for area development

Ignoring GST / TDS tax treatment

No audit or inspection rights

Using a foreign template without Indian legal review

No cure period for defaults

No clear supplier / product procurement rules

FAQs

Frequently Asked Questions

A Franchise Agreement is a contract under which a franchisor grants a franchisee specified rights to operate a business using the franchisor's brand, system, intellectual property, products, services or know‑how subject to agreed terms.

Yes, when it satisfies the requirements of the Indian Contract Act and is intended to create enforceable obligations.

India does not have a single comprehensive central statute governing every franchise relationship. Multiple laws (Contract Act, Trade Marks Act, Competition Act, GST, etc.) apply.

The franchisor is the brand/business‑system owner or entity authorised to grant franchise rights.

The franchisee is the person/entity authorised to operate the franchise business under the franchisor's system.

An initial fee paid for obtaining franchise rights under the agreement.

Ongoing payment made by the franchisee, commonly calculated as a percentage of revenue/sales or as a fixed amount.

GST may apply depending on the nature of the supply. The agreement should specify whether amounts are inclusive or exclusive of GST.

Potentially. The correct treatment depends on the nature of payment, resident/non‑resident status and applicable tax provisions. TDS on royalty is currently 10% for residents under Section 194J.

Stamp duty is State‑specific. The Indian Stamp Act provides for agreements and instruments; State amendments may vary the amount.

A normal franchise agreement does not automatically require registration. However, if it also creates rights in immovable property (e.g., a lease), that part may require separate registration.

Only according to the rights granted under the agreement and subject to quality control and approval requirements.

A territory where the franchisor agrees to provide specified protection against competing franchise outlets, subject to the terms and exceptions in the agreement.

A master franchise arrangement can give a party rights to develop a territory and potentially grant sub‑franchises.

Usually only with franchisor approval, and subject to transfer fees and new franchisee qualification.

The agreement may provide for interest, suspension, cure period and/or termination, subject to applicable law.

Immediate termination may be permitted for specified serious breaches if the agreement and applicable law support it.

The process of removing the franchisor's brand, logo, signage, packaging and other brand identifiers after termination.

It can contain restrictions, but enforceability must be carefully examined under Section 27 of the Indian Contract Act – broad clauses may be unenforceable.

Yes, subject to Indian laws, FEMA, tax treaties, IP registration and sector‑specific regulations.

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We assist with single‑unit, multi‑unit, master, area development, product, service, restaurant, retail, education, salon, technology and international franchise documentation. Our process covers model analysis, IP verification, commercial terms, royalty structures, territory, exclusivity, GST/TDS coordination, stamp duty, and termination/de‑branding provisions.

Franchise Drafting IP Protection Royalty Structures Territory & Exclusivity GST/TDS Compliance Termination & De‑branding

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