Franchise and Partnership laws

This provides an overview of the law and regulations relating to franchising in India and what aspiring entrepreneurs should know before starting a franchise business. The term ‘franchise’ is not defined in Indian law but is described as ‘an arrangement that permits the ‘franchisee’ to sell or manufacture products, provide services, or conduct businesses affiliated with the franchisor.’ A business franchise consists of a franchisor and a franchisee; the former provides the brand, trade name, and other intellectual property, while the latter is the company that pays a royalty and initial fee to the franchisor in exchange for running the franchised business. 

India’s Franchise Act of 1999 protects both parties regarding requirements for franchising agreements, procedures and penalties for termination, and a balance between the franchisor’s and the franchisee’s interests. Registration is not required to start a franchise in India, but registering a trademark is recommended to protect intellectual property. Disclosure laws are not in place, but the franchise agreement should include a disclosure clause. The Indian Contract Act of 1872 applies to the franchise agreement, and if applicable, the franchisor may impose restrictions on the franchisee. Finally, termination of the agreement can only be done for reasonable reasons. Franchising is a great way to get a business up and to run and is becoming more popular daily. This article examines the law and regulations surrounding franchising in India and will be helpful for anyone looking to start a franchise business.

DOCUMENTS REQUIRED TO BECOME A FRANCHISE BUSINESS PARTNER :

•  Passport Size Photograph
•  KYC Documents (Aadhar, PAN card)
•  Franchise fees (Cheque/ Bank Transfer)
•  Cancelled Cheque

Types of Franchise Agreements

There are several types of franchise agreements, including:

1. Product Distribution Franchise Agreement: The franchisee can sell the franchisor’s products in a specific territory.
2. Business Format Franchise Agreement: This agreement allows the franchisee to use the franchisor’s entire business system, including products, services, and trademarks.
3. Area Development Franchise Agreement: This arrangement enables the franchisee to set up and run numerous business locations in a particular region.
4. Master Franchise Agreement: This agreement allows the franchisee to sub-franchise and sell franchises to other franchisees within a specific geographic area.
5. Conversion Franchise Agreement: This type of franchise agreement allows the franchisee to convert an existing business into a franchise of the franchisor’s brand.
6. Joint Venture Franchise Agreement: This franchise agreement allows two or more parties to form a joint venture to establish a franchise system.

All partnership-related laws are codified in the Indian Partnership Act of 1932. This law helps manage partnership organisations. Due to the difficulty of running a business, partnership sectors dominate India’s economy today. A sole proprietorship or a partnership is India’s most common type of company. The majority of industries operate as sole proprietorships or partnerships. The state is also primarily responsible for carrying out these trades to run such industries. The Indian Partnership Act of 1932, which regulates business practices and agreements between partners to resolve conflicts, assumes significance in light of this.

In this task, the following components are mentioned:

Settlement:
Only after consent does a Settlement Partnership come into being. The Indian Contract Act must first make a contract. To learn what an agreement is, study the articles in the Contract Law Series.

A partnership should be established by an understanding between two or more people, though this agreement need not be expressed or written down; it can exist simply through actions. It should be clear that involvement is voluntary. A partnership can only be formed if the arrangement is voluntary. Similar requirements apply to partnership agreements under the Partnership Act, just as there are requirements under contract law for establishing an agreement.

Business:
Any agreement formed under the Partnership Act is done so for business purposes. Any business’s main objective is to make a profit. Business is defined as any activity carried out to make a profit. Such a business will be regarded as a partnership business if it is run through this company.

According to section 2(b) of the Indian Partnership Act of 1932, which defines a company as a profession, every business is a profession. This definition needs to make clear what business means, but it does make plain how quantitative business is. One element determines what a business is, but when all the pieces come together, effort, money, and hard work, done, and done to get profit, will be called business.

Types of Partnership

There are two types of partnership which are as follows.

• Partnership at will
  A partnership by will is a partnership where there is no provision made by contract between the partners for the duration of their partnership or the determination of their partnership.

• Particular Partnership
  A particular partnership is when a person becomes a partner with another individual for a specific business enterprise or for a particular business venture or undertaking, such as constructing a road, laying a railway line, etc. This partnership shall end on completing the task for which it was initially formed.

A partner by estoppel is someone who, through their words, actions, or conduct, demonstrates that they are a partner of the firm, even though they are not formally partners in the business. This partner is liable for the credit and debt incurred by the firm due to their representation. 

There are two prerequisites for being a ‘holding out’: the individual must have represented themselves as a partner, and the other party must know and take action based on this representation. A partner in profit only is a partner who only shares the firm’s profits and is not responsible for any losses. If this type of partner deals with any third party or outsider, they are only liable for any profits and not for any liabilities. They are not allowed to participate in the management of the business. 

A minor partner is someone under the legal age of majority, which is typically 18 years of age. According to the Indian Adulthood Act, a person is considered to have attained the age of majority when they turn 18. The Indian Contract Act of 1872 prohibits minors from entering into agreements, and any such agreement is voidable. However, the Partnership Act of 1932 allows minors to benefit from a partnership if specific guidelines and procedures are followed. This partner will share in the firm’s profits, but their liability for the losses is limited to their share of the firm. 

A secret partner is someone whose membership in the firm is kept hidden from outsiders and third parties. They share both the profits and the losses and may also participate in the running of the business. An outgoing partner leaves the existing firm voluntarily without dissolving it. Their liability for all debts and obligations incurred before their retirement remains. They may still be responsible for future duties if they fail to notify the public of their retirement.

A limited partner is a partner whose liability is limited to the extent of their contribution to the firm’s capital. A sub-partner is someone added to the share of an existing partner. The relationship is between the sub-partner and the partner, not the firm, and they are not liable for any actions of the partners. They can only claim their agreed share of the profits from the partner who contracted them. 

Under the Partnership Act 1932, partners may be classified according to purpose, tenure, nature, legal status, and registration. Partnerships at will are formed without a fixed time limit and based on the partners’ will. Special partnerships are created for a particular undertaking, such as a film production or building construction, and terminate upon completion. Partnerships for a fixed period and flexible partnerships may also exist. 

In a general partnership, the partners have the right to make decisions regarding the running and management of the firm, and their liability is unlimited. A limited liability partnership is a corporate form of business organisation, and the partners’ liabilities are limited to their contribution to the business. Legal and illegal partnerships may be distinguished, and firms may be registered or unregistered.