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What is a franchise business? It is a business in which the owners, or franchisers, sell the rights to their business logo and model to third parties, called franchisees. Examples of well-known franchise business models include Baskin Robbins, Subway, McDonald's, TGI Friday's, Taco Bell, Pizza Hut, Dominos Pizza, Ruby Tuesdays, Barista, Costa, Wetzel Pretzel, Papa John's and KFC. Beauty and Health Care Fitness clubs such as VLCC and Talwalkers have established chains while hair and beauty salons offering domestic branded products including Shanaz Hussein, Biotique and Habibs, and international brands, for example, L'Oreal and Tony & Guy, have marked their presence through the franchise model.
There are many different types of franchises. Many people associate only fast food businesses with franchising. In fact, there are over 120 different types of franchise businesses available today, including automotive, cleaning & maintenance, health & fitness, financial services, and pet-related franchises, just to name a few. Franchising has become one of the most popular ways of doing business in today's marketplace.
Franchise business opportunities are available across a variety of industries in India. Today, India is one of the biggest emerging markets for various goods and services, ranging from bare necessities to expensive luxuries. After the coming into force of the Foreign Exchange Management Act, 1999 (FEMA), foreign investors found their passage into India with rules for entry becoming far more favourable. Today, a convenient medium of entry by foreign companies into the Indian market is franchising. Franchising also exists as a successful business module for local companies in India within various sectors
How to start a franchise business in India? To invest in a franchise, the franchisee must first pay an initial fee for acquiring the rights to the business, training, and the equipment required by that particular franchise. Thereafter, the franchisee will generally pay the franchise business owner an ongoing royalty payment, either on a monthly or quarterly basis. This payment is usually calculated as a percentage of the franchise operation’s gross sales.
As a first step to start the franchise business a contract will have to be signed by the parties. After the contract has been signed, the franchisee will open a replica of the franchise business, under the direction of the franchiser. The franchisee will not have as much control over the business as he or she would over his or her own, but may benefit from investing in an already-established brand. Generally, the franchiser will require that the business model stay the same. For example, the franchiser will require the franchisee to use the uniforms, business methods, and signs or logos particular to the business itself. The franchisee should remember that he or she is not just buying the right to sell the franchiser’s product, but is buying the right to use the successful and tested business process. The franchisee will also usually have to use the same or similar pricing, in order to keep the advertising streamlined. Apart from using the business model determined by the franchiser, the franchisee will otherwise remain an independent owner of the franchise.
However, there are no laws enacted solely for the purpose of regulating the growing business of franchising in India, even though many nations across the world have enacted such laws. The result is that when franchisors enter India they are governed by a number of different statutes and codes like the Indian Contract Act, the Competition Act, 2002, the Trademarks Act, 1999 the Consumer Protection Act, 1986, the Foreign Exchange Management Act, 1999 etc., rather than a single comprehensive enactment. Therefore the parties proposing to enter into a franchise business should contact an experienced franchise attorney for assistance in order to comply with the legal requirements in India.