What must a franchise agreement in India cover? India has no franchise-specific law, so the signed agreement is the main rulebook between brand and franchisee. At a minimum it must make clear: what rights are granted and where (territory), for how long and on what renewal terms, every fee and how it is paid and reported, how the trade mark and know-how may be used, what training and support the brand gives, the operations manual and standards, supply rules, audit rights, what each side may not do during and after the term, how either side can end it and what happens at exit, and how disputes are resolved. It must also be properly stamped under the law of the state where it is signed.
This guide is for brand owners writing their first agreement, and for franchisees reading one. It does not repeat the legal background in franchise law in India or the licence list in the franchise registration checklist. Read those alongside this.
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The clause checklist
Use this as a review list. Every row should have a clear answer in the agreement, not in a brochure or a WhatsApp chat.
| Clause | What must be clear |
|---|---|
| Parties and grant of rights | Which legal entity grants the franchise, who signs for the franchisee, any personal guarantor, and exactly what is granted: one outlet, several, or development rights. |
| Territory | Exclusive, protected or non-exclusive; the map or pin codes; whether online orders, delivery apps and institutional sales are inside it; any performance targets tied to exclusivity. |
| Term and renewal | Start date, length, renewal conditions (audit scores, refit, payments up to date) and any renewal fee. |
| Fees and payments | Upfront fee, royalty or management fee, marketing fund, technology fees, how each is calculated, due dates, late interest, and GST and TDS treatment. |
| IP licence | Which trade marks, recipes, software and content are licensed, that ownership stays with the brand, and how the marks may be used. |
| Training and support | Opening training, launch support, field visits and ongoing help, and what costs extra. |
| Operations manual and standards | That the manual forms part of the agreement, how updates are issued, and what counts as a breach of standards. |
| Supply | Approved products and suppliers, whether the brand supplies directly, and how prices or margins are set. |
| Reporting and audit | Sales data the franchisee must share, POS access, audit and inspection rights, and the consequence of under-reporting. |
| Restrictive covenants | Exclusivity during the term, confidentiality, and any limits after the term, drafted with Section 27 in mind. |
| Transfer and exit | Whether the franchisee can sell or transfer, the brand's approval and first-refusal rights, and change of control. |
| Default and termination | Grounds for termination, notice and cure periods, what each side owes on exit, de-branding, stock and equipment. |
| Disputes, law and stamping | Governing law, arbitration or courts, seat and language, and stamp duty paid in the right state. |
Our franchise law guide lists these clauses in brief. The sections below cover the ones that cause the most disputes.
Grant of rights and territory
Write the grant narrowly and precisely. If you grant development rights for a city, say how many outlets, by when, and what happens if the targets are missed. For territory, the hard questions are delivery apps, online orders and a second outlet nearby. Decide them before you sell, using territory exclusivity design, and put the answer in a schedule with a map.
Fees, payments and reporting
Each fee needs a base (fixed amount or percentage of what), a due date and a reporting rule. A royalty on gross sales is only as good as your access to the sales data, so tie it to POS access and audit rights. Say whether figures are before or after GST, and how TDS certificates are handled. What to charge is covered in franchise fee structure in India and the royalty question; how GST and TDS apply is in the registration checklist. How to run audits is in franchise network operations management.
Term, renewal and exit
There is no legal minimum term. Match the term to the franchisee's realistic payback and refit cycle, so renewal is something both sides want. List the renewal conditions in the agreement rather than leaving them to discretion.
Termination needs equal care. Set clear grounds, written notice, a cure period for curable breaches, and an exit list: unpaid dues, de-branding, return of the manual, stock buy-back if any, and customer data. A franchise agreement that can be ended on notice may be treated as a contract "in its nature determinable" under Section 14 of the Specific Relief Act, 1963, which cannot be specifically enforced. So a franchisee who is wrongly terminated may end up with damages rather than reinstatement. Franchisees should negotiate notice, cure and exit terms before signing.
Non-compete, non-solicit and Section 27
Section 27 of the Indian Contract Act, 1872 says: "Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void." Its only statutory exception is for a person who sells the goodwill of a business.
In Gujarat Bottling v. Coca-Cola (1995), the Supreme Court held that a franchisee's promise not to deal in competing products while the agreement was in force was not a restraint of trade. A restriction after the agreement ends is a different question, and a franchisee rarely sells you goodwill. In practice: keep in-term exclusivity, and build post-exit protection on confidentiality, trade mark rights and return of the manual and data. Treat any post-term non-compete or non-solicit as a clause your lawyer must justify, not a standard line.
Disputes and stamp duty
Many franchise agreements choose arbitration. An arbitration agreement must be in writing, so name the seat, the rules or institution, the number of arbitrators and the language. The agreement also needs stamp duty under the law of the state where it is signed. Rates vary by state, so ask your lawyer for the amount. Under the Indian Stamp Act, 1899, an instrument that is not duly stamped cannot be admitted in evidence until the duty and a penalty are paid. Stamp it before you sign, usually by e-stamp or franking.
FOFO vs FOCO: how the agreement changes
The same headings apply, but the content changes with the model. See franchise models in India for the models themselves.
| Term | FOFO agreement | FOCO agreement |
|---|---|---|
| Who runs the outlet | Franchisee, to brand standards | Brand, on the investor's outlet |
| What the brand earns | Upfront fee and royalty, often on sales | Management fee or revenue share |
| What the investor gets | Outlet profit after fees | Profit, revenue share or a minimum guarantee, as written |
| Staff, lease and licences | Usually the franchisee's | Must be stated: whose name each sits in |
| Losses | Franchisee | Investor, unless a guarantee moves risk to the brand |
| Reporting | Franchisee reports sales to the brand | Brand reports sales and costs to the investor |
| Exit | De-branding and dues | Handover of staff, assets and accounts |
For franchisees: what to check before you sign
- The total investment and every recurring fee, in writing, not only the franchise fee.
- That the brand owns or has applied for the trade mark; see trademark registration before you franchise.
- Territory, renewal, termination and exit clauses, read more carefully than the fee clause.
- What "support" means in days, visits and people.
- A review by your own lawyer and chartered accountant.
Our Green Flag Assessment checks you and the brand before you commit. The Franchise Insiider is also paid by brands we work with. When we introduce an investor to a brand, we tell them upfront and in writing. See also how to buy a franchise in India.
Common mistakes
- Downloading a template written for another country or sector.
- Selling franchises before the trade mark is filed and the manual exists.
- Promising support or returns in sales talks that the agreement does not contain.
- Relying on a long post-term non-compete instead of confidentiality and IP rights.
- Signing on plain paper and stamping only when a dispute starts.
The Franchise Insiider is not a law firm. We prepare the franchise agreement framework under DB-FF, and a qualified lawyer reviews and finalises it. This article is general information, not legal advice. For how the commercial pieces fit, read the anatomy of a franchise deal.
How The Franchise Insiider helps
In our DB-7 method, commercial terms come before legal drafting. Under DB Franchise Framework (DB-FF) we set the model, fees, territory plan, partner profile and operations manual, then prepare the franchise agreement framework for your lawyer to review and finalise. DB-FF starts from ₹60,000. Founders who want ongoing help with expansion decisions can use Strategic Advisory, which is priced to scope; ask us for a proposal. Brand owners preparing to meet investors should also read the franchise investor pack and cost to franchise your business.
FAQs
What should a franchise agreement in India include?
At a minimum: the parties and grant of rights, territory, term and renewal, all fees and how they are paid and reported, the trade mark and know-how licence, training and support, the operations manual and standards, supply rules, audit rights, restrictive covenants, transfer, termination and exit, and dispute resolution. It must also be stamped under state law.
Is there a standard franchise agreement format in India?
No. India has no franchise-specific law and no government format or mandatory disclosure document. The agreement is built under general laws such as the Indian Contract Act, 1872. Draft it for your own model, sector and fees, not from a foreign template.
Can a franchisor stop a former franchisee from competing after the agreement ends?
Usually not with a non-compete alone. Section 27 of the Indian Contract Act voids agreements in restraint of trade, except for a seller of goodwill. The Supreme Court has upheld restrictions during the agreement, but post-term protection should rest on confidentiality, trade mark rights and return of the manual.
Does a franchise agreement need stamp duty in India?
Yes. Stamp duty is paid under the law of the state where the agreement is signed, and rates vary by state. An instrument that is not duly stamped cannot be admitted in evidence until the duty and a penalty are paid, so stamp it before signing.
How long should a franchise agreement term be?
There is no legal minimum. Set the term so a franchisee can realistically recover their investment and plan refits, and write the renewal conditions and any renewal fee into the agreement.
How is a FOCO agreement different from a FOFO agreement?
In FOFO the franchisee runs the outlet and pays fees and royalty. In FOCO the brand runs the investor's outlet, so the agreement must also set the management fee or revenue share, any minimum guarantee, whose name staff, lease and licences sit in, who bears losses and how the brand reports to the investor.
Who drafts the franchise agreement, and how does The Franchise Insiider help?
A qualified lawyer should review and finalise it. The Franchise Insiider is not a law firm. Under DB-FF we set the commercial terms and prepare the franchise agreement framework for your lawyer. DB-FF starts from ₹60,000. The Franchise Eligibility Test is free.