Franchise
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This article is written by Ashish Khamesra, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.

Introduction

Before setting up a franchise there are many things that a business owner needs to see before he can give a part of his business to another. To understand the workings of a business structure franchise we must understand the inner workings and how it functions as a whole.

Essentially a franchise is a way that the business moves forward and expands itself by giving other people the right to run a part of the business. It is basically a way of moving forward and trying to benefit the business so that it expands and attracts more clientele as well. It is adopted by any business who feels when it is time for expansion of their business they give the rights to another person so that they may run their business, not entirely of course but a part of their business. For example: there is a company that is selling food and beverages we see that they are selling it under the name of McDonalds, since they have been in the business of food and have been in the market for a long period of time they would like any other business know that they must have all the prerequisites of a business so that they can protect their own business and keep on working with it. We see that there are a bunch of measures that must be taken by the business before they give their business to another. 

Every business must be first of all registered in accordance with the business that they are conducting. Secondly, the business that has a trademark, the trademark must be registered under the Trademark Act, 1999. This will protect the mark and give the original owners the right to use the mark as they wish to do so. A mark can be anything that shows how the business that is being run is different from the others and there can be different types of marks that will show the dissimilarity between the mark of company A and Company B there are marks that may be as given below:

  1. A mark can be of any shape
  2. Size
  3. Colour
  4. Combination of colours
  5. Geometric pattern
  6. Combination of shape
  7. Any design 
  8. Expression

Such a protected mark would allow the established business to protect themselves if the person they are giving their franchise to is trying to use their business and their name, logo in his or her name. any mark will be able to tell and distinguish the business and a registered trademark would protect the business mark before its given to any other person to run in a franchise.

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Secondly, another thing that as an owner of a business you need to keep in mind is that, there must be a proper working contract that is to be drawn up that is deemed fair by both the parties that would help if there is any disagreement or any scuffle during the time of the franchise being run by a third person under your company name. There need to be working clauses that are present and available which need to be included that are as follows. 

  1. The first clause being the name of both the parties that will be used officially.
  2. The second being the date of the franchise being given to the party.
  3. The date when the agreement is to be terminated and how long the agreement would be valid till.
  4. The profit-sharing ratio between both the parties.
  5. How and who will pay for the decoration and work of the shop may be either sanitisation, painting, working of electricity etc through which the shop needs to be set up.
  6. Another thing that needs to be seen is that there must be utmost trust between both the parties that neither of the parties will falter in the growth of either the business or the franchise that is being given.
  7. The shop location can either be given to the future franchise owner or it can be taken by the franchise owner himself in the location that may be discussed later and that may be seen for future growth in different locations for the benefit of the business.
  8. Who will get the licensing done for the franchise will it be the franchise owner or will it be the business owner who is subletting his business in the name of a franchise.

A few other things that the business owner needs to decide is that he must check the market requirement before he or she gives a franchise to another person that could break his business if the franchise doesn’t pick up well enough. There is a lot of competition in the market and it is of utmost necessity that the owner does research and creates comparisons from a bunch of different markets and understands which one will be the best for his business. 

Difference between licensing and franchise

The essential difference between licensing and franchise is that any franchise is essentially given when the model of the business is perfected and they can now expand (quite similar to licensing indeed). The brand that is giving franchise they must give the brand some leverage and benefit in order to make the opening of a franchise a good deed. In a franchise, the business is run in accordance to the manner and instruction that has been given to you in exchange for a particular fee so let us take the example of the most seen franchise in Delhi NCR that is Domino’s. It is a well-known and understood brand, the blue white and red are indeed recognised by everyone in India and outside as well. Now Domino’s will give the instruction from their head office that they want each and everything to be done in accordance and similarity to the first dominoes that is the original place the decoration, the colour combination, the business model, the pricing, the products etc would be run by the owner of the chain who will dictate how the same will run. The franchisor in turn will give you all the knowledge and goods and know-how to run operations.

Meanwhile in licensing we see that there is a slight difference that is how much control is required for you as an owner would you like to give or /and take. You would be licensed to use the brands goods and benefit from the brand recognition but would run it on your own this would, in turn, give you much more control in comparison and also a licensing agreement is much cheaper in comparison to a franchisee agreement since you would then be responsible for the costs that are normally associated with a business that would in a franchisee include a franchise fee. 

The owner will need to hold workshops and meetings through which they need to be ready to impart training and also keep Non-disclosure agreements as they would need to impart some kind of knowledge that would come under training and that may be a trade secret that is of a lot of importance to the business, keeping those at bay and holding workshops in a manner that the trade secrets do not come out is of utmost importance. There are many other things such as teaching anyone to make a beverage that you have created or to use a particular machine, remember that “everytime an owner imparts knowledge on his business there is a teaching that is gained by the second person” this may many times put your franchise at risk. The franchise may either be outsourced or own it doesn’t matter what matters is that the level of competition, the secrets of the business, the marketplace, the requirement is to be seen amongst a lot of other factors that are present.

As a franchise owner, you need to assess your own strengths, positives and negatives that will then benefit you in the long run that you would be able to understand the highs and lows as every business has a time period when they go out of business or it is off-season before you set up a franchise it is of utmost importance that you understand and measure the entire field that is of utmost importance. Anytime a person sets up a franchise they must understand that they should check if there are any disparities between the documents. All of the work must be seen and done up beforehand, all the licenses that are required must be taken from the government and the agencies that are required so that there are no problems and disparities later on that may cause an issue for the franchise to open. There are a few licenses that are required for the benefit of the franchise and so that the opening of the same is much easier for the franchise owner or the business owner depending upon the agreement as to who will get all the licensing done for the franchise this must be pre-decided and must be also done much in advance to the opening of the shop.

  1. GST registration
  2. Liquor License (if required)
  3. Fire license
  4. Lift license
  5. FSSAI License 
  6. Health and Trade license
  7.  Environmental Clearance license
  8. Eating house license
  9. Signage license 
  10. Shop and establishment License
  11. Insurance
  12. Music License

These are very important and for the benefit of the franchise being set up and this will make the functioning of the same much easier for both the parties of course especially when it is pre-decided between both the parties. 

Conclusion

We need to understand that there is a lot that goes behind the workings of a franchise. It is of the utmost importance to create and have clarity in order to open a franchise. There must be an iron-clad contract drawn up for no mishaps in the future and a franchise is a great manner to create a business and understand the benefits of the same if handled correctly it is the best and greatest expansion of any business that is present, in order to set up in new locations and also benefit the individual who creates the franchisee and gives it to a third person. In conclusion, the franchisee does help in the expansion of any business it is also a great way to attract more clientele and have more customers as well. It is important to have a solid contract so that there is smooth running of the same.

References

  1. https://www.entrepreneur.com/article/305010
  2. https://blog.hubspot.com/sales/franchise
  3. https://www.franchiseindia.com/content/20-point-Checklist-before-you-start-a-franchise-business.86531
  4. https://in.godaddy.com/blog/want-to-start-a-franchise-business-in-india-heres-how/

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