Type of Franchising Agreements in India

Read below the type of Franchising Agreement in India:

There are three broad classifications of types of Franchising Agreement in India, which are further sub divided. These are:

    • Product or Distribution Franchise: A product manufactured by franchisor is sold to a franchisee who, in turn, sells it to consumers under the trademark of the franchisor. Automotive and petroleum franchises such as Ford, General Motors, and Exxon are example of this type of franchise model. However, there is a difference between Franchising agreement and Distribution agreement in India. Under a franchise agreement, the franchisee is permitted and encouraged to use the trademarks and brand name of the franchisor as part of its everyday business practices. A distributor is not permitted to operate under the trademarked name of the company whose products it distributes. Instead, the distributor operates under its own business name. 
    • Manufacturing, Production or Processing Franchise: The franchisor sells the franchisee an essential ingredient, or provides some specific know-how which, along with ongoing quality controls by the franchisor, enables the franchisee to manufacture or process the final product and sell it to retailors, or in some cases, to end consumers. Coca-Cola operates in many markets throughout the world in this manner, supplying franchisee with the essential ingredient of Coca-Cola. 
    • Business Format Franchising: The franchisor licenses to another franchisee the right to use the particular business model including the IPRs associated with it. The franchisor licenses to another franchisee the right to use the particular business model including the IPRs associated with it. Internationally known brands such as Hilton, Holiday Inn and 7-Eleven are examples of companies that use this model.
    • Direct Franchising: A franchisor enters into individual franchise agreement for each outlet thereby franchisor having direct control over each franchisee. However, in case of international franchising due to issues of repatriating revenues, tax implications, as well as difficulties related to dealing with the unique attributes of different countries, including language, culture, laws, regulations and business practices a master franchise model is preferred.
    • Master Franchise Agreement: In this another entity is given the right to sub-franchise the franchisor’s business concept within a given territory in accordance with a development timetable. Here, the franchisee, in effect, acts as the franchisor in the target country. the disadvantage of this approach is the loss of control over sub-franchisees.
    • Following are essentially some of the ways in which a franchise system may be expanded overseas:
      • The franchisor, either from its headquarters or from foreign branch operation, grants individual franchises to franchisees in the target country
      • The franchisor enters into a master franchise agreement.
      • The franchisor establishes a subsidiary in the target country, and that subsidiary acts as the franchisor.
      • A joint venture is established between the franchisor and a third party who is knowledgeable about the target country. The joint venture will acts as the franchisor in the target country.

To know more about Franchising Law in India click here

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