How to Sign a Franchise Agreement Properly in India

When turning your existing business into a franchise, agreeing the terms is not enough. Naming the wrong entity, using an unauthorised signatory or leaving the list of attachments incomplete can later lead to disputes over rights and payments. To build trust within the franchising community from the outset, establish a clear process for executing the agreement—that is, signing it properly and making it legally enforceable. This guide focuses on that final stage.

1. Establish who the agreement is with

The name on a shop sign may differ from the legal name of the person or entity running the business. Simply putting the brand name in the agreement is not enough. Record each party’s full legal name, address and relevant identification details. For a company or limited liability partnership, check the name against its incorporation records.

For a sole trader business, the owner’s identity must be clear; do not treat the trading name as a separate legal person. If a prospective franchise partner says that a company will be formed later, do not rush to sign in the name of that future entity. First establish who will take on the obligations now and how those obligations will be transferred later.

Run through this short checklist before signing:

• Is the person signing a party to the agreement or an authorised representative?
• Does the representative have the relevant letter of authority, resolution or other valid authorisation?
• Does the entity granting the right to use the brand actually hold that right?
• Is the relationship between the receiving bank account and the recipient named in the agreement clear?

If a personal guarantee is required, set out the guarantor’s role separately and clearly. Signing on behalf of a company does not automatically amount to giving a personal guarantee.

2. Understand which laws apply

India has no comprehensive national law specifically governing franchising, no mandatory national franchising code of conduct and no separate central franchise registration system. Nor is there a general franchise-specific obligation to provide a disclosure document in a prescribed format before selling a franchise. This does not mean that every term becomes valid simply because the agreement has been signed.

Under the Indian Contract Act, 1872, the parties’ capacity to contract, free consent, lawful consideration and lawful purpose are important. Consent obtained through fraud or misrepresentation may provide grounds for challenging the agreement. Check that significant promises made during negotiations are reflected in the final document.

The Trade Marks Act, 1999 governs rights in and use of the brand. Anti-competitive restrictions may be scrutinised under the Competition Act, 2002. The Consumer Protection Act, 2019 is also relevant to obligations towards end customers. Tax laws and, where foreign investment or cross-border payments are involved, foreign exchange management rules may apply separately.

An ordinary franchise agreement is not filed with a franchise authority. However, business formation, tax compliance and activity-specific approvals are separate matters; a private agreement does not replace them.

3. Distinguish between stamp duty, notarisation and registration

Paying stamp duty, having a document notarised and registering it are three different processes. A notary’s seal alone does not remedy insufficient stamp duty. Equally, it is wrong to assume that every franchise agreement must automatically be registered.

The applicable stamp duty depends on the nature of the document and the law of the relevant Indian state. Do not assume that one fixed stamp-paper value applies across all states. Tell your lawyer in advance where the agreement will be signed, where it will be used and what rights it grants. Have the duty, payment method and correct timing of payment determined on that basis.

If the arrangement also includes a lease of premises or rights relating to immovable property, separate registration and stamp duty requirements may apply. Calling a document a ‘franchise agreement’ does not change its substance. A separate review of the premises-related documents is useful.

Insufficient stamping may prevent the document from being admitted as evidence and may result in additional duty or penalties. Avoid the habit of signing first and completing the formalities later.

4. Create a process from the final copy to secure record-keeping

Issue a single final version for signing. Check the date, the parties’ names, attachments and all cross-references. Do not leave blanks, incomplete payment details or wording such as ‘to be agreed later’ on important matters.

Put one responsible person in charge of this checklist:

• All attachments are available in the versions referred to in the agreement.
• The signatories’ names, positions and evidence of their authority are retained securely.
• The signing date and the agreement’s effective date are clear.
• Any conditions that must be met before using the brand or starting operations are set out in writing.
• Each party receives the complete signed document and evidence of the applicable stamp duty payment.

If electronic signatures are chosen, first check their legal suitability for the type of document, identity verification and stamp duty compliance. Do not rely solely on a pasted image of a signature. Record any subsequent changes through the agreed written amendment procedure.

Practical takeaway: Before signing, confirm that the parties are correctly identified, the necessary authority is in place, the final version is complete and stamp duty requirements have been met. Only then authorise the next payments and operational steps under the agreement.