Buying a Franchise in India: Whose Name Should Be on the Agreement?

Once buyers have chosen a brand, they often move straight on to discussing fees and premises. But first, decide who will actually buy the franchise—you personally, a partnership, a limited liability partnership or a company. This choice affects liability under the agreement, investors’ rights and the process for changing ownership later. To get your franchise business off to a sound start, its legal structure must match the party named in the agreement.

1. Understand the legal framework first

India has no dedicated central law governing franchising, no compulsory government franchise registration and no prescribed pre-sale disclosure document. This does not mean franchise businesses operate without a legal framework. The Indian Contract Act, 1872 provides the main basis for contract formation, free consent, performance, breach and remedies. Rules on fraud and misrepresentation also apply.

Depending on the business structure, the Indian Partnership Act, 1932, the Limited Liability Partnership Act, 2008 or the Companies Act, 2013 may be relevant. Applicable tax laws, Goods and Services Tax (GST), the Trade Marks Act, 1999 and the Competition Act, 2002 may also affect the arrangement.

The absence of a specific franchise registration requirement does not mean the buyer’s business entity need not be registered. Setting up a company or limited liability partnership requires its own legal procedures. Separately check which business registrations are required for the activity and location.

2. Recognise how liability differs across the four structures

Do not choose solely on the basis of low set-up costs. Understand who could be held liable if the business incurs losses or a payment dispute arises.

• Sole proprietorship: The owner and the business are not separate legal persons. Business debts and liabilities are generally the owner’s personal responsibility. Simply using a trading name for the outlet does not create separate legal protection.
• Partnership: Two or more people can run a business together, but partners in an ordinary partnership may have unlimited liability. Partners can be jointly and severally liable for the firm’s acts.
• Limited liability partnership (LLP): An LLP is a separate legal entity. Partners’ liability is generally limited, but protection is not absolute, particularly where a partner’s own wrongful acts or fraud are involved.
• Company: In a company limited by shares, shareholders’ liability is generally limited to any amount unpaid on their shares. This structure also brings ongoing record-keeping, filing and corporate governance obligations.

Limited liability does not provide personal protection in every circumstance. Any separate personal undertaking or statutory liability must be assessed in its own right. Ask a lawyer and an accountant to compare the options against your investment, risk exposure and capacity to handle administration.

3. Get the brand’s approval for the proposed buyer

A brand may accept an application from an individual but enter into the final agreement only with a particular type of entity. It may also require the principal owner to retain a minimum stake or take part in day-to-day operations. Obtain written confirmation before spending money on setting up an entity.

Ask for clear answers to these questions:

• Is the proposed company, partnership or LLP eligible to be the buyer under the agreement?
• Is prior approval required for changes to owners, partners or directors?
• Are passive investors acceptable, or must all owners play an active role?
• Will a change in ownership stakes also count as a franchise transfer under the agreement?

For example, two friends may intend to invest equal amounts, while the application is in only one friend’s name. This does not automatically give the other friend contractual rights against the brand. Make sure the investment arrangements and the agreement with the brand are aligned.

4. Put co-owners’ rights in writing first

The brand’s franchise agreement does not fully govern the relationship between your co-investors. Set out the rules for decision-making and capital contributions in a separate partnership deed, LLP agreement or appropriate company documents.

Record who will provide additional funding, how an owner working in the business will be paid and who will decide on profit distributions. Where ownership is split equally, a process for resolving disagreements is particularly important. Also clarify who has authority to make bank payments, borrow money and approve major expenditure.

These documents must not conflict with the franchise agreement. An agreement between investors might allow one of them to change their stake, while the brand’s agreement requires prior consent for the same change. Have both sets of documents reviewed together.

5. Check that the names match before paying

Use a checklist to verify the buyer’s identity across the application, final agreement, invoices, payment accounts and operational documents. Alongside any trading name, include the correct legal name and applicable identification details. The person signing must have proper authority to act on behalf of the entity.

If the company has not yet been incorporated, signing an agreement in its name—or assuming a personal payment will automatically count as a company payment—is risky. Seek legal advice on pre-incorporation commitments and how they can later be adopted or transferred. An agreement entered into in your personal name does not automatically pass to a company later.

Practical takeaway: Choose the buyer’s legal structure first, obtain the brand’s approval, and only then sign the agreement and make payments. Naming the correct party in every document lays the foundation for future rights and responsibilities.