Franchise explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
India has no single statute devoted to franchising, so the franchise agreement itself carries most of the rules between the franchisor and the franchisee. This article gives a complete specimen agreement for one outlet, explains every clause and lists the mistakes that cause disputes later. If you are drafting for a brand that is about to appoint its first franchisee, our agreement drafting service can adapt the specimen to your business. For the legal framework around the contract, read our companion guide on franchise agreements in India; for the trademark licence terms, see key clauses of a franchise agreement with a trademark licence.
A franchise agreement lets the franchisee run an outlet under the franchisor's brand and system in return for payments, while the franchisor keeps control over quality. It must say what is granted, where, for how long, what each side pays and does, who owns stock and intellectual property, how it ends and what happens afterwards. Because the contract is the main source of rights, vague clauses on territory, fees and termination are the commonest cause of disputes. Stamp duty depends on the State where the agreement is signed.
When you need a franchise agreement
You need one before a franchisee opens an outlet, spends on fit-out, receives stock or uses the brand name. A signed agreement is also what a bank, a landlord and a licensing authority will ask to see. Use a written agreement even for a pilot outlet; informal arrangements leave the brand owner without a clear right to stop misuse and leave the franchisee without a clear right to compensation or buy-back.
A franchise differs from a distributorship. A franchisee operates under the franchisor's marks and method and follows its standards; a distributor ordinarily buys and resells under its own identity. If the arrangement is really a supply relationship, use a distribution agreement instead. Our guide to franchise versus own business sets out the commercial differences.
Specimen franchise agreement
This is a general model for a single retail or service outlet. It is written to be adapted; every bracketed item needs your facts.
FRANCHISE AGREEMENT This Agreement is made on at BETWEEN , a having its registered office at (the "Franchisor"); AND , a having its place of business at , acting through (the "Franchisee"). BACKGROUND A. The Franchisor owns and operates a business of under the brand (the "Brand") and has developed a system of operation, including methods, manuals, designs and supply sources (the "System"). B. The Franchisee wishes to operate one outlet under the Brand using the System, and the Franchisor is willing to permit this on the terms of this Agreement. THE PARTIES AGREE AS FOLLOWS: 1. Definitions. "Outlet" means the premises at approved by the Franchisor. "Products" means . "Manual" means the operating manual issued by the Franchisor and updated from time to time. "Net Sales" means . "Term" means the period in clause 4. 2. Grant. The Franchisor grants the Franchisee a non-transferable right to operate one Outlet at the approved premises, selling the Products under the Brand and the System, for the Term. The grant is within the territory described in Schedule 1. All rights not expressly granted remain with the Franchisor. 3. Conditions before opening. The Franchisee shall, before opening: (a) obtain every licence, registration and permission needed for the Outlet; (b) complete the fit-out in line with the Franchisor's design standards; (c) complete the training in clause 9; and (d) obtain the Franchisor's written approval to open. 4. Term and renewal. This Agreement runs for from . It may be renewed for on written request made before expiry, if the Franchisee has complied with this Agreement and signs the Franchisor's then current form of agreement. 5. Payments. The Franchisee shall pay: (a) an initial franchise fee of on signing; (b) a continuing fee of of Net Sales, payable by ; (c) a contribution of to the brand marketing fund; and (d) a refundable security deposit of , held without interest and returned on exit after set-off of dues. Taxes on all payments shall be added where applicable. Late payments carry interest at per annum. 6. Supply and pricing. The Franchisee shall buy the Products and key inputs only from the Franchisor or from suppliers approved in writing. The Franchisor may recommend a retail price; the Franchisee shall set its own selling price subject to any maximum price printed by law. 7. Stock and ownership. Stock supplied on terms remains the property of as stated in Schedule 2. The Franchisee shall store stock safely, keep it insured for , allow stock counts on and bear loss or damage except where caused by an insured event beyond its control. 8. Operations and quality. The Franchisee shall operate the Outlet according to the Manual, keep the Outlet open on the days and hours in Schedule 1, maintain the standards of appearance, hygiene and service set by the Franchisor, and allow inspections on . 9. Training and support. The Franchisor shall provide initial training of for persons and ongoing support as set out in Schedule 3. The Franchisee shall bear the cost of its staff's travel and time. 10. Staff. The Franchisee is responsible for recruiting, paying and supervising its own staff and for every statutory payment due for them. They are not employees of the Franchisor. 11. Brand and intellectual property. The Franchisee may use the Brand and the System only at the Outlet and only as this Agreement and the Manual allow. All goodwill from that use belongs to the Franchisor. The Franchisee shall not register or use any name, domain or social media identity that includes the Brand or is confusingly similar to it, and shall tell the Franchisor at once of any infringement it notices. The licence terms in Schedule 4 form part of this Agreement. 12. Advertising. All advertising shall use materials approved by the Franchisor. The Franchisor shall spend the marketing fund on brand-wide promotion and shall give an annual account of it on request. Local advertising costs be shared as stated in Schedule 3. 13. Records and reporting. The Franchisee shall keep books and stock records, send a monthly statement of sales, stock and receipts by , and allow the Franchisor or its auditors to inspect the books during business hours. 14. Confidentiality. Each party shall keep the other's confidential information, including the Manual, supplier terms and pricing, confidential during the Term and for afterwards. 15. Restrictions. During the Term the Franchisee shall not operate or hold an interest in a competing business at or near the Outlet. After the Term, restrictions on competing business apply only to the extent they are reasonable and permitted by law, as set out in Schedule 5. 16. Insurance and indemnity. The Franchisee shall maintain insurance for the Outlet and its stock as listed in Schedule 3 and shall indemnify the Franchisor against loss arising from the Franchisee's breach of this Agreement or negligent operation of the Outlet. The Franchisor shall indemnify the Franchisee against third-party claims that use of the Brand as licensed infringes another person's rights. 17. Taxes and compliance. Each party is responsible for its own taxes. The Franchisee shall issue invoices and file returns in its own name and keep every licence for the Outlet valid. Each party shall comply with the laws that apply to its part of the business. 18. Termination by notice. Either party may end this Agreement by written notice if the other commits a material breach and does not remedy it within of written notice. The Franchisor may end it on notice for the events listed in Schedule 6, such as non-payment, repeated quality failures, closure of the Outlet, insolvency or misuse of the Brand. 19. Early exit by the Franchisee. If the Franchisee ends this Agreement before the end of the initial Term without cause, it shall pay the amounts stated in Schedule 6 as a fair estimate of the Franchisor's loss, and not as a penalty. 20. Consequences of ending. On expiry or termination the Franchisee shall: stop using the Brand and the System; remove signage; return the Manual and confidential material; hand over stock as set out in Schedule 2; pay all dues; and give the Franchisor a statement of account within . The Franchisor shall buy back saleable stock at and refund the security deposit after set-off. 21. Dispute resolution. The parties shall first try to resolve a dispute by discussion between senior representatives within . If unresolved, the dispute shall be referred to arbitration by at under the Arbitration and Conciliation Act, 1996. The courts at have jurisdiction for interim relief and enforcement. 22. General. This Agreement is the whole agreement between the parties on its subject. Changes must be in writing and signed by both parties. Neither party may assign its rights without the other's written consent. Notices shall be sent to the addresses above and are deemed received on . If any clause is held invalid, the rest continues. This Agreement is governed by the laws of India. IN WITNESS WHEREOF the parties have signed this Agreement on the date first written above. For For Name: Name: Designation: Designation: Signature: ____________ Signature: ____________ WITNESSES 1. Name: Address: Signature: ____________ 2. Name: Address: Signature: ____________ SCHEDULE 1 - Territory, premises, days and hours of operation SCHEDULE 2 - Stock terms and handling SCHEDULE 3 - Training, support, insurance and shared costs SCHEDULE 4 - Brand licence terms SCHEDULE 5 - Post-term restrictions SCHEDULE 6 - Termination events and exit payments
Clause-by-clause explanation
| Clause | What it does | Drafting tip |
|---|---|---|
| Definitions (1) | Fixes the meaning of Outlet, Products, Manual, Net Sales | Define Net Sales precisely; fee disputes usually begin here |
| Grant (2) | Gives a limited, personal right to run one outlet | State whether the territory is exclusive and what the franchisor may still do there, such as online sales |
| Conditions (3) | Lists steps before opening | Link opening to written approval, so the franchisor has a checkpoint |
| Term and renewal (4) | Sets duration and renewal route | Make renewal conditional on compliance and on signing the then current form |
| Payments (5) | Initial fee, continuing fee, marketing fund, deposit | Put figures in a schedule; say what is refundable and when |
| Supply and pricing (6) | Requires approved sources and controls price setting | Take care with price control; see the competition law note below |
| Stock (7) | Ownership, custody, insurance | Say who owns stock at each stage and who bears loss |
| Operations (8) | Manual, hours, standards, inspections | Attach or refer to the Manual by version |
| Training (9) | Initial and continuing support | State duration and who pays travel |
| Staff (10) | Keeps staff on the franchisee's payroll | Avoid language that makes staff look like the franchisor's employees |
| Brand and IP (11) | Limits use of marks and system | Cross-refer to the licence schedule |
| Advertising (12) | Approved materials and marketing fund | Promise an account of fund use |
| Records (13) | Reports and audit rights | Set a reporting date |
| Confidentiality (14) | Protects manual and terms | Add a survival period |
| Restrictions (15) | Non-compete during and after term | Keep post-term restraints reasonable and limited |
| Insurance and indemnity (16) | Allocates risk | Make indemnities two-way where fair |
| Taxes (17) | Each party handles its own | Check invoicing roles with your tax adviser |
| Termination (18, 19) | Grounds and exit payment | Use a genuine estimate of loss, not a penalty |
| Consequences (20) | De-branding, stock, accounts | Include a buy-back rule for saleable stock |
| Disputes (21) | Discussion, then arbitration | Name the seat and the number of arbitrators |
| General (22) | Entire agreement, amendments, assignment | Keep notices clause precise |
The law behind the agreement
The agreement is a contract, so the Indian Contract Act, 1872 governs formation, performance and remedies. Three provisions come up most. Section 27 makes an agreement in restraint of trade void to the extent of the restraint, which is why post-term non-compete clauses must be framed with care; see section 27 and non-compete clauses. Section 74 deals with stipulated sums payable on breach; see liquidated damages and penalty. Section 73 covers compensation for breach; see section 73.
The Competition Act, 2002 matters because franchise agreements often contain supply, exclusivity and price terms. In the consolidated text consulted, section 3(4) treats agreements between enterprises at different levels of the production chain, including tie-in arrangements, exclusive supply, exclusive distribution, refusal to deal and resale price maintenance, as contravening section 3(1) if they cause or are likely to cause an appreciable adverse effect on competition in India. See vertical agreements under section 3. That is why the specimen treats the retail price as a recommendation and checks supplier restrictions.
If the franchisor or the franchisee is outside India, cross-border payments and structure raise foreign exchange questions; take advice and check the current rules. For tax on fees and supplies, see our income-tax guides and the posts on GST for franchises and TDS for franchises.
Stamp duty, registration and execution
A franchise agreement is ordinarily an instrument chargeable with stamp duty, and the duty is fixed by the Stamp Act and Schedule of the State where it is executed; no figure is given here. See stamp duty on legal documents, State-wise. The agreement is not compulsorily registrable merely because it is a franchise agreement; if it includes a lease of immovable property, that part has its own registration rules under section 17 of the Registration Act, 1908.
Execution steps: finalise schedules and the Manual version; print on stamp paper or pay duty electronically; have an authorised signatory sign every page with a board resolution or authority letter where a company signs; add two witnesses; keep one original each. A cheque or security deposit receipt should be issued on signing.
Common mistakes
- Granting a territory without saying whether the franchisor may sell there online or through other channels.
- Leaving "Net Sales" undefined, so fee calculations are argued later.
- Copying a post-term non-compete that is wider than the law allows.
- Fixing the retail price rather than recommending it.
- Stating an exit payment as a penalty instead of a genuine estimate of loss.
- Failing to say who owns stock, who insures it and who bears shortages.
- Omitting a de-branding and stock buy-back process, which leaves both sides stuck on exit.
- Using a disputes clause that names no seat or number of arbitrators.
Need help drafting a franchise agreement?
A franchise agreement should reflect your fees, territory and brand controls. Our agreement drafting team prepares the agreement, schedules and manual references, and reviews them against the contract and competition rules before you sign.
Key takeaways
- The contract is the main rule-book; draft it fully and keep schedules for figures.
- Define territory, Net Sales, stock ownership and exit consequences with precision.
- Treat price terms and exclusivity with care under the Competition Act, 2002.
- Keep non-compete and exit payment clauses within what the Contract Act allows.
- Stamp duty depends on the State; registration depends on any property interest created.
Read next
- Franchise agreements in India: the legal framework
- Franchise agreement with a trademark licence: key clauses
- Complete compliance checklist for franchises in India
- Arbitration clause for commercial contracts
Disclaimer: This specimen is a general model for information. Every document must be adapted to its facts and to the law, rules and forms in force when it is signed or filed; stamp duty, registration and court fees depend on the State and the forum. This article is general information, not legal advice; check the official text before acting.