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Franchise Agreement

A balanced unit franchise agreement for India covering territory, fees, royalty, training, approved suppliers, trade marks, audit and termination.

A franchise agreement lets a franchisee run a business using the franchisor's brand, system and support in return for fees and royalty. You need one before paying any franchise fee or opening an outlet under someone else's brand.

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What to watch when you use this

  • India has no franchise-specific law. A franchise is governed mainly by the Indian Contract Act, 1872, the Trade Marks Act, 1999, the Competition Act, 2002 and consumer law, so the agreement itself carries most of the protection.
  • Check that the franchisor owns, or is licensed to use, the brand. Search the trade mark records on the IP India website before paying any fee.
  • Section 27 of the Indian Contract Act, 1872 makes post-termination non-competes generally unenforceable. Restrictions during the term and on use of the brand, system and confidential information after it are a different matter.
  • Ask for unit economics in writing: investment, fit-out cost, expected sales and payback. There is no mandatory franchise disclosure document in India.
  • GST applies to franchise fees and royalty, and tax may need to be deducted at source. Confirm the treatment with your accountant, especially if the franchisor is outside India.

Stamping and registration. Stamp duty is a State subject, and an unstamped or insufficiently stamped instrument is generally inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 until the duty and penalty are paid. Registration requirements are separate and depend on the instrument and the State. Confirm both for your State before executing this document.

Template
FRANCHISE AGREEMENT

This Franchise Agreement is made on [DATE] between:

[FRANCHISOR NAME], having its registered office at [ADDRESS], GSTIN [GSTIN] ("Franchisor"); and
[FRANCHISEE NAME], having its registered office / residing at [ADDRESS], PAN [PAN], GSTIN [GSTIN] ("Franchisee").

The Franchisor has developed a system for operating [TYPE OF BUSINESS] under the brand "[BRAND NAME]" ("System"), and the Franchisee wishes to operate one outlet under the System on the following terms.

1. GRANT
1.1 The Franchisor grants the Franchisee a non-transferable right to operate one outlet under the brand and System at the location approved under clause 4 ("Outlet"), within the territory described in Schedule 1 ("Territory").
1.2 During the term, the Franchisor will not itself operate, or grant anyone else the right to operate, an outlet under the brand within the Territory, so long as the Franchisee meets the minimum performance standards in Schedule 1. Online sales by the Franchisor are [permitted / subject to Schedule 1].

2. TERM AND RENEWAL
2.1 This Agreement is for [NUMBER] years from the date the Outlet opens.
2.2 The Franchisee may renew for a further [NUMBER] years by giving notice at least [NUMBER] months before expiry, if it is not in uncured material breach. The renewal fee is ₹[AMOUNT], and no fresh initial fee is payable.

3. FEES
3.1 Initial franchise fee: ₹[AMOUNT], payable on signing. If the Outlet does not open within [NUMBER] months for reasons attributable to the Franchisor, including failure to approve a suitable site or provide training, the Franchisor will refund [PERCENTAGE]% of the initial fee.
3.2 Royalty: [PERCENTAGE]% of Net Sales each month, payable by the [DAY] day of the following month. "Net Sales" means gross sales less GST, discounts actually given and refunds.
3.3 Marketing contribution: [PERCENTAGE]% of Net Sales, to be used only for advertising and promoting the brand. The Franchisor will share an annual statement of how the marketing fund was spent.
3.4 All fees are exclusive of GST. The Franchisee may deduct tax at source as required by law.
3.5 No fee other than those in this clause and Schedule 1 is payable without the Franchisee's written agreement.

4. SITE AND FIT-OUT
4.1 The Franchisee will propose a site within the Territory. The Franchisor will approve or reject it in writing, with reasons, within [NUMBER] days.
4.2 The Franchisee will fit out the Outlet to the Franchisor's design standards, using approved contractors or others who meet those standards.

5. TRAINING AND SUPPORT
5.1 Before opening, the Franchisor will train the Franchisee and up to [NUMBER] staff for [NUMBER] days at no extra charge, other than travel and accommodation.
5.2 The Franchisor will provide on-site opening support for [NUMBER] days and reasonable ongoing support.
5.3 The Franchisor will give the Franchisee the operations manual and may update it on reasonable notice. If a change requires capital expenditure above ₹[AMOUNT] in any [NUMBER]-year period, it will apply only with the Franchisee's consent or at renewal.

6. SUPPLIES
6.1 The Franchisee will buy the items listed in Schedule 2 from the Franchisor or its approved suppliers, to protect product consistency.
6.2 Prices charged for such items will be reasonable and in line with market rates for comparable quality. The Franchisee may propose an alternative supplier, and the Franchisor will not unreasonably refuse approval if quality standards are met.

7. TRADE MARKS
7.1 The Franchisor confirms that it owns, or is entitled to license, the trade marks listed in Schedule 1, and that it has applied for or obtained registration of them under the Trade Marks Act, 1999.
7.2 The Franchisee will use the trade marks only at the Outlet and only as permitted by this Agreement and the manual. All goodwill from their use belongs to the Franchisor.
7.3 The Franchisor will defend, and indemnify the Franchisee against, any third-party claim that the Franchisee's permitted use of the trade marks infringes another person's rights.

8. RECORDS AND AUDIT
The Franchisee will maintain accurate accounts. The Franchisor may audit the Franchisee's records relating to Net Sales on [NUMBER] days' notice. If an audit reveals under-reporting of more than [PERCENTAGE]%, the Franchisee will pay the shortfall with interest and the audit cost.

9. CONFIDENTIALITY
The Franchisee will keep the manual, recipes, processes and other confidential information of the Franchisor secret, during and after the term.

10. RESTRICTIONS
During the term, the Franchisee will not operate or hold an interest in a business that competes with the System within the Territory. After the term, the Franchisee will not use the brand, System, manual or confidential information, or represent any connection with the Franchisor.

11. TRANSFER
The Franchisee may sell the Outlet business to a buyer who meets the Franchisor's reasonable criteria, with the Franchisor's written consent, which will not be unreasonably withheld. A transfer fee of ₹[AMOUNT] is payable.

12. TERMINATION
12.1 Either party may terminate this Agreement if the other commits a material breach and does not remedy it within [NUMBER] days of written notice describing the breach.
12.2 The Franchisor may terminate on [NUMBER] days' notice if royalty or other fees remain unpaid for more than [NUMBER] days after written reminder, or immediately if the Franchisee commits a serious food safety, health or legal violation endangering customers or the brand.
12.3 The Franchisee may terminate on [NUMBER] months' notice after the first [NUMBER] years, on payment of any amounts then due.

13. CONSEQUENCES OF TERMINATION OR EXPIRY
13.1 Within [NUMBER] days, the Franchisee will stop using the trade marks, remove signage and branded items, and return the manual.
13.2 The Franchisor may, at its option, buy the Franchisee's unused branded stock at cost.

14. DISPUTES AND GOVERNING LAW
This Agreement is governed by the laws of India. Disputes not resolved by discussion within [NUMBER] days will be referred to a sole arbitrator appointed by mutual agreement under the Arbitration and Conciliation Act, 1996, with the seat at [CITY]. Either party may seek urgent interim relief from a competent court.

15. GENERAL
The Franchisee is an independent business and not an agent, partner or employee of the Franchisor. Amendments must be in writing signed by both parties.

For [FRANCHISOR NAME]                For [FRANCHISEE NAME]

_______________________              _______________________
Name: [NAME]                         Name: [NAME]
Designation: [DESIGNATION]           Designation: [DESIGNATION]
Date: [DATE]                         Date: [DATE]

SCHEDULE 1: COMMERCIAL TERMS
Territory: [DESCRIBE, FOR EXAMPLE PIN CODES OR RADIUS]
Minimum performance standards: [FOR EXAMPLE MINIMUM NET SALES PER YEAR]
Trade marks and registration or application numbers: [LIST]
Fees: initial fee, royalty, marketing contribution, renewal fee, transfer fee: [AMOUNTS]

SCHEDULE 2: ITEMS TO BE BOUGHT FROM APPROVED SOURCES
[LIST ITEMS, FOR EXAMPLE PROPRIETARY SAUCES, PACKAGING WITH BRAND MARKS]

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This free template is provided by ClauseAudit as general information, not legal advice, and using it does not create an advocate-client relationship. Replace every [BRACKETED] placeholder. Stamp duty and registration requirements vary by State and are your responsibility. Have the final document reviewed by a qualified advocate before use.

When to use this template

  • You are buying a franchise for a restaurant, cafe, salon, education centre, retail store or similar business.
  • You own a brand and are granting your first franchises.
  • The franchisor has sent a draft and you want to compare it with a balanced version.
  • An existing franchise is up for renewal and the terms need updating.

How to fill it in

  1. Verify the franchisor's company details and search the trade mark records on the IP India website for the brand.
  2. Complete Schedule 1 with the territory, performance standards, trade mark numbers and all fees.
  3. List in Schedule 2 only the items that genuinely need to come from approved sources.
  4. Set the term, renewal, notice periods, refund percentage and audit tolerance.
  5. Pay stamp duty under your State's stamp law, usually by e-stamping, before or at signing.
  6. Sign through authorised signatories, and keep the operations manual version and all fee receipts with the agreement.

Key clauses explained

Territory protection tied to performance (clause 1.2)
Exclusivity protects the franchisee's investment; performance standards protect the franchisor from an under-served territory. Linking the two is fair to both.
Refundable initial fee (clause 3.1)
If the franchisor fails to approve a site or train the franchisee, the franchisee should not lose the whole fee for an outlet that never opened.
Marketing fund accountability (clause 3.3)
Franchisees pay into a fund they do not control. An annual statement of spending is a basic safeguard against misuse.
Approved suppliers at market rates (clause 6)
Mandatory supplies are a common hidden profit centre. Requiring reasonable prices and allowing alternatives that meet quality standards protects franchisee margins.
Trade mark warranty and indemnity (clause 7)
A franchisee who builds a business on a brand the franchisor does not own can lose everything to an infringement claim. The warranty and indemnity shift that risk to the franchisor.
No post-term non-compete (clause 10)
Post-termination non-competes are generally void under Section 27 of the Indian Contract Act, 1872. Protecting the brand and confidential information is enforceable and achieves most of the same aim.

Frequently asked questions

Is there a franchise law in India?

No. India has no franchise-specific statute or mandatory disclosure regime. Franchise relationships are governed by the Indian Contract Act, 1872, the Trade Marks Act, 1999, the Competition Act, 2002, consumer and tax law, and foreign exchange rules where the franchisor is overseas. Because of this, the written agreement is the main protection for both parties.

Can a franchisor stop me opening a similar business after the franchise ends?

Generally not through a non-compete. Section 27 of the Indian Contract Act, 1872 makes agreements in restraint of trade void, and courts have applied this to post-termination restrictions. A franchisor can, however, stop you using its brand, recipes, manual, confidential information or any suggestion of association, and can restrict competition during the term.

Is the franchise fee refundable?

Only if the agreement says so. Many franchisor drafts make the initial fee non-refundable in all cases. A fairer approach, used in this template, refunds a portion if the outlet does not open for reasons attributable to the franchisor. Negotiate this before paying, because recovering a fee without a contractual basis is difficult.

Can the franchisor force me to buy all supplies from it?

A franchisor can require key items to come from approved sources to protect brand consistency. Problems arise when the list is very wide or prices are well above market. Depending on the facts, tying arrangements by businesses with market power can also raise issues under the Competition Act, 2002. Limit mandatory items and require reasonable pricing.

How do I check that the franchisor owns the brand?

Search the trade mark on the IP India public search facility, which shows the applicant, status and classes. Confirm that the registered owner is the franchisor or a related entity that has licensed it in writing. Also ask how many outlets are operating and speak to some existing franchisees before signing.

Is GST payable on franchise fees and royalty?

Franchise fees and royalty are generally treated as a taxable supply of services under GST, payable in addition to the fee unless the agreement says otherwise. Tax may also need to be deducted at source by the franchisee. If the franchisor is located outside India, different GST and withholding rules may apply, so confirm the position with your accountant.

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This free template is general information about Indian law as at 2026-10-10, not legal advice, and using it does not create an advocate–client relationship. Replace every bracketed placeholder and have the final document reviewed by a qualified advocate before use.