Buying a Franchise in India: Check Who Is Responsible for Licences

The franchise agreement is signed and the premises are ready, but an essential approval has not come through. In this situation, cash reserves can start shrinking before sales even begin. For a first-time franchise buyer, a key question is: who will obtain permission to run this business at this address? Check licence responsibilities, costs and the consequences of delays while choosing a brand; do not leave them until opening day.

1. Brand approval and government permission are different

A franchisor’s site approval letter may simply confirm that the premises meet its commercial standards. It is not a substitute for permission from the local authority, fire authority or relevant regulator. Nor does the fact that the same brand operates in another city establish that your proposed premises are eligible.

India has no separate, comprehensive franchise law, mandatory national pre-sale disclosure document or franchise-specific registration system. This does not mean franchises are exempt from ordinary business approvals. The Indian Contract Act, 1872 governs the formation, performance and breach of agreements. Depending on the business, the Trade Marks Act, 1999, the Competition Act, 2002, tax laws and local rules may also apply.

Do not expect the franchisor to provide licensing information automatically. Ask questions in writing. Remedies for misrepresentation or fraud may be available under contract law, but any right to rescind the agreement or claim compensation will depend on the facts and legal grounds.

2. Draw up an approvals checklist for the proposed activities

First, establish exactly what the outlet will do. Selling only packaged food, cooking on the premises and running a delivery kitchen are not the same type of operation. Similarly, beauty services and medical procedures may trigger different requirements.

Ask a local professional to prepare a checklist for your specific address and activities. Checks may include:

• Food businesses: Registration or licensing required under the Food Safety and Standards Act, 2006 and associated rules. The appropriate category will depend on the nature of the business and the applicable criteria.
• Premises and operations: Applicable state shops and establishments legislation, a municipal trade licence, the building’s permitted use and, where required, fire safety approval.
• Tax and specialist activities: Goods and Services Tax (GST) registration where the relevant conditions apply, and specific permissions for activities such as selling medicines.
• Other local requirements: Signage, waste disposal or pollution-related permissions, where applicable.

This is not a universal checklist. For each item, record the issuing authority, required documents and the basis for confirming the requirement. In particular, check whether the building’s approved use matches the proposed business.

3. Put responsibility for applications in writing

A contract stating only that “the franchisee will obtain all licences” assigns responsibility but does not establish how the work will get done. If an application requires plans, equipment details, product lists or an authorisation letter from the franchisor, deadlines for supplying these should also be agreed.

Create a responsibility table covering the approval required, the applicant entity, the party supplying the documents, the party paying the fees and the next step. Make a clear distinction between the franchisor submitting an application and merely providing advice. Appointing a consultant does not automatically transfer statutory responsibility to them.

If you are buying an existing outlet, do not be satisfied simply with seeing a copy of its licence. Check the licence holder’s name, premises address, authorised activities and validity. Confirm with the relevant authority whether a change of ownership or operating entity requires an amendment, a fresh application or separate approval. Assuming that an existing licence transfers automatically is risky.

4. Agree in advance who bears the cost of approval delays

Rent, staff wages, interest and security costs may continue while approvals are pending. Your financial plan should cover not only application fees but also the cash needed until trading begins. Prepare a delayed-opening budget alongside your normal forecast, rather than relying on an arbitrary, one-size-fits-all timescale.

When reviewing the contract, ask:

• Does the opening deadline run from the date of the agreement or from receipt of the necessary approvals?
• Which fixed fees will be payable while approvals are pending?
• How will deadlines and costs be adjusted if the franchisor supplies documents late?
• If permission is refused, what happens to relocation, the option to halt the project and any unused advance payments?

Do not leave the answers solely in emails; have the relevant terms included in the signed agreement or an addendum. Rather than asking either party to guarantee government approval, clarify the tasks within each party’s control and their responsibility for delays.

5. Keep evidence before opening and monitor ongoing requirements

Do not treat an application receipt as final permission unless the applicable rules allow you to operate on that basis. Before opening, compile a record of the required approvals and ask a local specialist to review any outstanding items. Pressure from the brand to open is no substitute for legal compliance.

Keep a calendar of licence validity periods, renewals and any requirements to notify authorities when activities change. Where the franchisor’s assistance is needed, document its obligation to supply the necessary paperwork.

Practical takeaway: Have three things ready before investing: an address-specific approvals checklist, a responsibility table for each party and a cash-flow budget for delays. Resolve any uncertainty in these areas before setting an opening date.