How a franchise agreement protects the value of your brand?

How a franchise agreement protects the value of your brand?

A franchisee is a corporation that a parent company licences to a third party using its brand name and business strategy. Despite being branded and managed by much larger global corporations, a franchise is owned and run by a single person.

Hard Rock Café, Johnny Rockets, KFC, Krispy Kreme Donuts, McDonald's, Pinkberry, Pizza Hut, Quiznos, Subway, and many other popular chains that you can find in malls and large shopping centres are examples of franchises.

An agreement enforceable by law that protects the value of a brand is known as franchise agreement. Here, the franchisor grants the franchisee the right to operate a business associated with the franchisor’s trademark.

There are seven types of franchise agreements, including:

  • Master franchise agreements
  • Product distribution franchise agreements
  • Job franchise agreements
  • Conversion franchise agreements
  • Investment franchise agreements
  • Business format franchise agreements
  • Area development agreements

Regardless of the type, all franchise agreements have the same basic components. But if you need a highly specific agreement, there can be important variances. Therefore, while drafting your contracts, you should always look for a customised choice. A franchise agreement typically has the following essential components:

  • Territorial claims
  • Minimum requirements for performance
  • Needs for franchisor services
  • Franchisee fee
  • Trademark use
  • Advertising standards
  • Exclusivity clause
  • Insurance requirements

A franchise agreement is a binding legal contract that details the terms and conditions of the franchisor for the franchisee.There is no specific franchising business model law in India. Franchise disclosure documentation and registration of franchise offerings are not necessary.

The franchise agreement and its components, including termination, non-disclosure, and other conditions, are not specifically covered by any laws. This does not imply that franchising in India is unregulated and subject to arbitrary regulation. The franchising business model has established its illustrative foundation in India through a number of laws.

Different laws regulating various aspects of franchising in India are as follows:

  • The Indian Contract Act, 1872: The main legislation governing the essential terms of the agreements between a franchisor and a franchisee in a franchise firm is the Indian Contract Act. It makes decisions on fundamental concepts like offer and acceptance, consideration, breach of contracts, and other activities at the most basic levels.
  • The Competition Act, 2002: The competition act forbids agreements relating to the manufacture, supply, distribution, storage, purchase, or control of commodities or the delivery of services that have a considerable negative impact on competition inside India or that are likely to do so. This law was created to prevent large franchises from establishing a monopoly in the market.
  • Income Tax Act, 1961: The Income Tax Act regulates the tax aspects of a franchise business. The income tax legislation stipulates that the business reaping benefits from Indian land must pay the necessary taxes. This law also governs the process of international franchising. In India, all royalties and franchise fees are taxed at the appropriate rates.
  • Consumer Protection Act, 1986: The Consumer Protection Act promotes for consumers' rights and interests. The law in India that protects consumers is in their favour. The customer has a number of protections against deceptive business practises. The consumer protection law is put into effect whenever there is any product or service problem. A consumer may submit a complaint under the consumer protection statute against both the franchisee and the franchisor.
  • Arbitration and Conciliation Act, 1996: In India, alternative conflict resolution is heavily marketed. Arbitration is a remedy to the overflow of litigation in Indian courts. The Arbitration and Conciliation Act broadens the definition of arbitration to include all disputes.
  • The Foreign Exchange Management Act, 1999: When foreign currency or assets are involved, the FEMA regulations apply. This law regulates major foreign brands with franchises in India, including Reebok, KFC, and Subway. It controls payments made in foreign currencies. Many of the previous limitations on international franchisors' ability to impose specific fees without governmental clearance have been abolished by the Indian government.
  • The Trademarks Act, 1999, Patent Act, 1970, Design Act, 2000, Copyright Act 1957: These laws control the franchise agreement's use of trademarks, patents, designs, and copyright. Any brand's trademark serves as its distinguishing feature, and in India it is legally protected by proper registration in accordance with the Trademark Act. Every product has a special formula! Nobody is capable of making chicken from KFC taste the same at home. The patent law governs this element of items.

Most of the time, franchising is a lucrative investment for the franchisor. The risk is transferred from the franchisor to the franchisee, and it is the franchise's responsibility to ensure its success. Success in a franchised business is not guaranteed. The success rate of any franchise firm is largely determined by a number of variables, including the market, competitors, and regulatory regulations. The most common risk is brand dilution. But a Franchise Agreement is a tool against brand dilution; here are the reasons why;

The franchise agreement is a useful instrument for minimising this risk and protects the value of a brand. As stated by Rahul Leekha, GM of Di Bella Coffee India, "A good quality legal agreement should be established by a franchisor under the supervision of a qualified individual of both the legal and business nuances of franchising before recruiting franchisees”.

Franchisees are required to run their businesses strictly in line with the franchising system as part of their reasonable contractual obligations. Additionally, he must advertise and promote the franchise in accordance with the franchisor's guidelines, standards, and specifications. A franchisor should schedule periodic inspection tours for franchised stores to assure quality control. He also emphasises the importance of using a well-known brand name and logo.

The franchise agreement and the FDD should be reviewed by a franchise lawyer regardless of whether you are able to negotiate conditions. Important clauses in the franchise agreement can be explained by a qualified franchise lawyer.

Additionally, a franchise attorney might be able to draw attention to clauses that are disproportionately harsh or one-sided compared to others in the sector. An expert lawyer will know what to look for in the Franchise Disclosure Document and will be able to spot warning signs. The lawyer might also be familiar with state and common law regulations that safeguard franchisees. Prior knowledge could prevent you from making a costly error.

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