Purchasing a franchise might be a terrific option for a would-be entrepreneur who does not want to start a new firm from scratch. In principle, franchisees get a model that already works on every level, from branding to pricing to marketing.
What is a Franchise Business?
A franchise (or franchising) is a method of distributing products or services that involves a franchisor, who establishes the brand’s trademark or trade name as well as a business system, and a franchisee, who pays a royalty and, in some cases, an initial fee for the right to do business under the franchisor’s name and system.
The “franchise” technically refers to the contract that binds the two parties, but it is more generally used to refer to the actual business that the franchisee conducts. The technique of developing and spreading a brand and franchise structure is commonly known as franchising.
The term “franchise” has not been defined under Indian law. However, its meaning can be derived from the Finance Act of 1999, which states that a “franchise” is an arrangement that allows the “franchisee” (as defined below) to sell or produce goods, offer services, or pursue companies affiliated with the franchisor.
Features of Franchise Business
- To begin, under a franchising agreement, the franchisor allows the franchisee authorization to utilize its intellectual property, such as patents and trademarks.
- Second, in exchange for the franchise, the franchisor receives a fee (i.e. royalty) and may be required to contribute a portion of his earnings. On the contrary, the franchisor supplies the franchise with goods, services, and help.
- Finally, both franchisees sign a franchising agreement. This agreement is essentially a contract that defines the terms and circumstances that apply to the franchise.
Services that Franchisors Provide to Franchisees
- A well-known brand name,
- Assistance in site selection and development,
- You and your management team will get training.
- New product and service research and development
- Headquarters and field assistance,
- Marketing includes advertising, both initial and ongoing.
The function of Franchise Business
A Franchise Agreement is typically signed by the two parties involved in a franchise. This agreement permits the franchise to offer its products or services under the franchisor’s brand name. In exchange, the franchisee pays the franchisor a fee.
The franchisee can sell these items and services as a branch of the parent firm. It may even employ franchise rights to offer these items under its brand.
The franchisor may award franchise rights to one or more people or businesses. As a result, if just one individual obtains these rights, he becomes the only seller of the franchisor’s products in a given market or geographic area.
Examples of Franchise Business in India
- Taco Bell
- Burger King
- Baskin Robbins
- Pizza Hut
- Dunkin’ Donuts
Regulatory Framework of Franchise Business
Franchise agreements in India aren’t governed by any franchise-specific legislation but by various applicable statutory enactments of the country. A few of them includes:
- The Indian Contract Act 1872;
- The Consumer Protection Act, 1986;
- The Trade Marks Act, 1999;
- The Copyright Act, 1957;
- The Patents Act, 1970;
- The Design Act, 2000;
- The Specific Relief Act, 1963;
- The Foreign Exchange Management Act, 1999;
- The Transfer of Property Act, 1882; the Indian Stamp Act, 1899;
- The Income Tax Act, 1961;
- The Arbitration and Conciliation Act, 1996; and
- The Information Technology Act, 2000.