Business Contracts

Franchise Agreement Guide India: Key Terms Before You Sign

February 12, 2026 • 8 min read

India's franchise industry is worth over ₹1 lakh crore and growing at 30% annually. From QSR chains to education centres, franchise models are booming. But behind every successful franchise is a complex legal agreement that can make or break your investment.

Unlike the US, India has no dedicated franchise law. Franchise agreements are governed by the Indian Contract Act 1872, IP laws, and competition law. This makes the agreement itself your primary legal protection.

Understanding Franchise Models

🏪 FOFO , Franchise Owned, Franchise Operated

The franchisee invests capital, owns the outlet, and handles daily operations. Highest risk and reward. You bear all costs, setup, rent, staff, inventory.

🏪 FOCO , Franchise Owned, Company Operated

You invest the capital and own the outlet, but the franchisor manages operations. Lower risk since the experienced franchisor handles day-to-day, but you earn a lower percentage.

🏪 COCO , Company Owned, Company Operated

The franchisor owns and operates. Not a franchise model per se, but some brands convert successful franchise outlets to COCO as buyback.

12 Essential Clauses in a Franchise Agreement

Franchise Fee & Royalty Structure: Upfront fee, monthly royalties (typically 4-8% of revenue), marketing fund contributions, and any hidden charges.
Territory Rights: Exclusive vs non-exclusive territory. Define the radius clearly (e.g., "No other franchise within 3 km"). Without this, the franchisor can open a competing outlet next door.
Duration & Renewal: Initial term (usually 5-10 years), renewal conditions, renewal fees, and whether renewal is automatic or at franchisor's discretion.
Training & Support: What training is provided, its duration, who bears travel costs, and ongoing support commitments.
Supply Chain Obligations: Must you buy from approved suppliers only? At what prices? What happens if there are supply disruptions?
Intellectual Property License: Scope of trademark/brand usage rights, restrictions, and what happens to IP upon termination.
Performance Standards: Minimum revenue targets, quality audits, customer satisfaction scores. What happens if you miss targets?
Advertising & Marketing: National vs local marketing responsibilities. Who controls brand messaging? How much must you spend on local marketing?
Transfer & Assignment: Can you sell your franchise? Under what conditions? Does the franchisor have right of first refusal?
Termination & Exit: Grounds for termination by either party, notice period, cure periods for breaches, and post-termination obligations.
Non-Compete Clause: Typically restricts you from operating a competing business for 1-2 years post-termination within the territory.
Dispute Resolution: Arbitration seat, governing law, and escalation mechanism.

Red Flags in Franchise Agreements

❌ No exclusive territory: The franchisor can oversaturate your area
❌ Franchisor can change terms unilaterally: Watch for "as amended from time to time" clauses
❌ No financial projections disclosure: Reputable franchisors share unit economics
❌ Termination without cause: Franchisor can terminate for any reason with short notice
❌ Mandatory supplier with inflated pricing: You're locked into buying at above-market rates
❌ No transfer rights: You can't sell or exit the business
❌ Broad non-compete covering unrelated industries: Prevents you from doing any business

Due Diligence Before Signing

Talk to existing franchisees: Ask about actual revenue, franchisor support, and hidden costs
Verify the brand's trademark registration: Check the IP India portal for valid trademark registrations
Review financials: Ask for audited P&L statements of existing franchise outlets
Check litigation history: Search for any ongoing disputes between the franchisor and franchisees
Get the agreement reviewed: Never sign a franchise agreement without legal review

Don't Sign Blindly.

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Key Takeaways

✅ India has no dedicated franchise law , the agreement IS your protection
✅ Always insist on exclusive territorial rights
✅ Understand your model (FOFO/FOCO) and its financial implications
✅ Check for termination rights, transfer restrictions, and non-compete scope
✅ Talk to existing franchisees before committing capital

Frequently Asked Questions

Is there a franchise law in India?

India does not have a dedicated franchise law. Franchise agreements are governed by the Indian Contract Act 1872, along with applicable sector-specific regulations, competition law (Competition Act 2002), trademark law, and consumer protection laws. This makes the franchise agreement itself the primary legal document.

What are the main franchise models in India?

The three main models are FOFO (Franchise Owned Franchise Operated) where the franchisee invests and operates, FOCO (Franchise Owned Company Operated) where the franchisee invests but the franchisor operates, and COCO (Company Owned Company Operated) which is not technically a franchise but a company-run outlet.

What should a franchise agreement include?

Essential clauses include territory rights and exclusivity, franchise fees and royalty structure, brand usage and IP rights, training and support obligations, quality control standards, term and renewal conditions, termination rights, non-compete restrictions, and dispute resolution mechanism.

How long should a franchise agreement be?

Typical franchise agreements in India run for 5-10 years with renewal options. The term should be long enough for the franchisee to recover their investment but include performance benchmarks and renewal conditions to protect the franchisor.