Licence Checks Before Opening a Franchise in India

When franchising an existing business, it is risky to assume that the permissions for your first shop will cover every new outlet. Requirements may change with a different city, premises or operator. A key step in responsible franchise expansion is to establish, before opening, which permissions are needed, who will obtain them and who will check their validity.

1. Franchise registration and business permissions are separate matters

India has no dedicated central franchising law, mandatory national franchise code of conduct or separate franchise registration system. Nor is there a franchise-specific requirement to provide a disclosure document in a prescribed format before selling a franchise. This does not, however, mean that a new outlet can open without meeting general business compliance requirements.

The Indian Contract Act, 1872 provides the basis for the validity of agreements and the parties’ obligations. Consent obtained through misrepresentation or fraud may give rise to a legal challenge. The Trade Marks Act, 1999 concerns brand rights, the Competition Act, 2002 addresses anti-competitive arrangements, and the Consumer Protection Act, 2019 covers consumer rights. Tax, employment and local rules also apply, depending on the activity, state and premises.

Authorisation from the brand owner is not a substitute for a government licence. Likewise, signing a franchise agreement does not automatically make commercial use of the premises lawful.

2. Map the permissions needed for each proposed outlet

Treat your existing establishment’s records as a starting point, not a definitive checklist. For the new outlet, record the business activity, actual operator, address, approved use of the building and proposed facilities. Then ask a local specialist to verify the applicable requirements.

Checks may cover:

• Shops and establishments rules: Requirements for registration, notification or other compliance in the relevant state.
• Municipal permissions: A trade licence, signage approval or other local permissions, depending on the activity.
• Building and fire safety: Approved use, occupancy documents and, where required, a fire safety no-objection certificate.
• Food businesses: The appropriate registration or licence under the Food Safety and Standards Act, 2006.
• Tax registration: Check the applicable Goods and Services Tax (GST) threshold and specific cases where registration is compulsory; being a franchise does not, in itself, make registration mandatory for every business.
• Specialist activities: Separate permissions for selling medicines, providing healthcare or carrying out other regulated activities.

For each entry, record the issuing authority, applicant’s name, required documents, status and renewal conditions. Where a permission does not apply, record the reason as well.

3. Check the premises before committing to a lease or fit-out costs

Signing a long lease and starting fit-out work as soon as you find a preferred location can prove expensive. First establish whether the proposed activity is permitted at those premises. The landlord’s verbal consent, a previous tenant’s licence or another shop operating in the same building is not sufficient evidence.

For example, in a food-serving business, requirements for exits, ventilation, water, waste disposal and fire safety may affect the suitability of the premises. Do not approve a location solely on the basis of footfall and rent.

Ask a lawyer to ensure that the lease clearly addresses permitted use, the documents the landlord must provide and what happens if the necessary permissions cannot be obtained. Where possible, make major non-recoverable expenditure conditional on completing the document checks. The brand’s site approval should state clearly whether it is a commercial assessment alone or also includes a legal compliance review.

4. Set out responsibility and verification separately in the agreement

A single line such as ‘the franchisee will obtain all licences’ is not an adequate action plan. Attach an outlet-specific responsibility schedule to the agreement. Identify separately the party making each application, the party bearing the cost, the person supplying the documents and the person responsible for checking the evidence.

Also specify which documents the brand owner must provide. These might include authorisation to use the brand or an approved design for the premises. Before holding the franchisee responsible for a delay, check whether the necessary support was provided on time.

Keep opening conditions objective: specify which evidence is required, who will review it and how any gaps will be addressed. Allocating responsibilities by contract does not automatically remove either party’s statutory obligations. Keeping a copy of a certificate is not the same as checking its validity.

5. Keep evidence of opening checks and renewals

Conduct a joint review before opening. For every applicable permission, check that the name, address, activity, validity period and conditions are correct. Where permission is required, do not treat an application receipt alone as authorisation to operate; verify its actual legal status under the applicable procedure.

Do not open the outlet merely to meet an advertised date if a required permission is still outstanding. Keep a written record of unresolved matters, the person responsible and the next review. Also record the brand’s final approval to open, but do not present it as government approval.

After opening, maintain a shared renewal calendar. If the address, operator, activity or premises change, check again whether any permissions need to be amended.

Practical takeaway: Before granting your first franchise, prepare a template compliance checklist, but have it verified locally for each new outlet. The decision to open should be determined by valid documents and fulfilment of all required conditions, not by a date.