Starting a franchise business in India is a promising opportunity, with the industry valued at nearly $48 billion in 2025 and expected to triple by 2028. The franchise model allows entrepreneurs to operate under established brands, offering benefits like reduced risk, marketing support, faster ROI, and easier access to funding. However, India lacks a dedicated franchise law, and franchisees often face challenges such as poor legal disclosure norms, high real estate costs, varied regional dynamics, regulatory hurdles, and limited operational flexibility.
In this guide, we will understand what is franchise business model, its advantages, legal framework governing it, steps to start a franchise business model, and challenges faced while operating a franchise business model.
What is the Franchise Business Model?
A franchise is a business arrangement where the franchisor (brand owner) grants the franchisee (individual or entity) the rights to operate under their brand name, utilize their business model, processes, and intellectual property. In return, the franchisee pays an upfront franchise fee and ongoing royalties.
Advantages of a Franchise Model
The franchise business model has numerous benefits, such as:
- Established Brand Name: A franchise allows you to operate under a well-known brand, which helps attract customers faster than starting a new business from scratch.
- Lower Risk of Failure: Since you are running a business based on a successful model, the chances of failure are much lower compared to a new venture.
- Marketing and Advertising Assistance: National or regional-level marketing campaigns run by the franchisor benefit all franchisees. Sometimes, the franchisees also receive local advertising support from the franchisor.
- Faster Return on Investment (ROI): With a strong brand and ready-made infrastructure, you are likely to break even and start earning profits more quickly.
- Easier Access to Funding: Financial institutions are more willing to provide loans for a franchise due to its lower risk profile and brand backing.
- Built-in Customer Trust: Customers tend to trust and choose familiar brands, which gives you an edge in competitive markets.
- Scalability and Expansion Potential: If your first unit performs well, you may be eligible to open multiple franchises under the same brand, growing your business portfolio.
Legal Framework Governing Franchising in India
India does not have a specific franchise law. Instead, franchising is governed by a combination of existing laws and regulations, including:
- Indian Contract Act, 1872
- Intellectual Property Laws: Patents Act of 1970, Copyright Act of 1970, and Trademarks Act of 199.
- Protect trademarks, patents, and copyrights involved in franchising.
- Competition Act, 2002
- Foreign Exchange Management Act (FEMA), 1999
- Goods and Services Tax (GST) Act, 2017
Steps to Start a Franchise Business in India
1. Self-Assessment and Research
Before starting on a franchising journey, evaluate your interests, skills, and financial capacity. Research various franchise opportunities across sectors to identify a business that aligns with your goals.
2. Choose the Right Franchise
Consider factors such as:
- Market Demand: Evaluate the demand for the product or service in your target location.
- Franchise Support: Assess the level of training, marketing, and operational support provided by the franchisor.
- Investment Requirements: Understand the initial investment, ongoing fees, and potential returns.
3. Legal Due Diligence
Review the Franchise Disclosure Document (FDD) and Franchise Agreement carefully. Key clauses to consider:
| Franchise Disclosure Document (FDD) | Franchise Agreement |
| 1. Background of the Franchisor
2. Litigation History involving Franchisor 3. Bankruptcy History of the franchisor 4. Initial Investment Costs 5. Franchise Fee Structure 6. Territorial Rights 7. Obligations of the Franchisor 8. Franchisee’s Responsibilities 9. Restrictions on Products and Services 10. Intellectual Property Rights 11. Marketing and Advertising Contributions 12. Exit Terms |
1. Grant of Franchise Rights
2. Fee and Payment Structure 3. Territory and Location Rights 4. Term and Renewal Clause 5. Termination Clause 6. Post-Term Obligations 7. Training and Operational Support 8. Intellectual Property Usage 9. Audit Rights and Reporting Obligations 10. Transfer of Ownership 11. Dispute Resolution Mechanism 12. Confidentiality Clause 13. Insurance Requirements |
4. Business Entity Formation
Decide on the appropriate legal structure for your franchise, such as:
- Sole Proprietorship
- Partnership Firm
- Limited Liability Partnership (LLP)
- Private Limited Company
- One Person Company (OPC)
5. Obtain Necessary Registrations and Licenses
Depending on your business type and location, secure the following:
- Permanent Account Number (PAN)
- Tax Deduction and Collection Account Number (TAN): If applicable.
- Goods and Services Tax (GST) Registration
- FSSAI License – if applicable
- Shops and Establishment License- if applicable
- Trade License- depending on the nature of the business.
6. Secure Funding
Assess your financial requirements and explore funding options such as:
- Personal Savings: Utilizing personal funds.
- Bank Loans: Approach banks for business loans.
- Government Schemes: Leverage schemes like MUDRA loans for small businesses.
7. Site Selection and Setup
Choose a location that aligns with your target market and business type. Ensure compliance with local zoning laws and obtain necessary approvals. Set up the premises as per franchisor guidelines, including interior design, equipment installation, and branding.
8. Training and Hiring
Participate in training programs offered by the franchisor to understand operational procedures. Recruit and train staff to maintain service quality and adhere to brand standards.
9. Marketing and Launch
Develop a marketing plan in collaboration with the franchisor. Utilize both traditional and digital marketing channels to promote your franchise. Plan a launch event to create buzz and attract initial customers.
Challenges Faced
- Lack of a Specific Franchise Law: India does not have a dedicated franchise-specific statute. This creates legal ambiguity and makes dispute resolution or contract enforcement more complex under the Indian Contract Act and Consumer Protection laws.
- Inadequate Legal Disclosure Norms: Unlike countries like the U.S. or Canada, franchisors in India are not legally bound to furnish a standard Franchise Disclosure Document (FDD). This increases the risk for franchisees due to a lack of transparency.
- Uneven Regional Market Dynamics: Consumer behaviour, purchasing power, and preferences vary drastically across Indian states and cities. A business model that works in Delhi may fail in Kochi or Guwahati due to cultural and economic differences.
- Real Estate and Location Hurdles: Acquiring a commercially viable space in high-footfall areas is a major challenge due to rising rents, licensing barriers, and local municipal issues. Poor location can seriously hurt a franchise’s performance.
- Overdependence on the Franchisor: Many franchisees rely completely on the franchisor for marketing, operations, procurement, and training. Any inefficiency or delay at the franchisor’s end directly impacts the franchisee’s performance.
- Inconsistent Supply Chain and Logistics: Logistics infrastructure, especially in tier-2 and tier-3 cities, is not always robust. This affects the timely supply of goods, increases cost, and hampers uniform service delivery.
- Brand Control vs. Operational Flexibility: Franchisors impose strict guidelines to maintain brand consistency. However, this can limit the franchisee’s ability to innovate or localize products/services, especially in diverse Indian markets.
- Regulatory and Licensing Issues: Franchise outlets, especially in food, healthcare, education, and wellness, must obtain multiple local licenses (FSSAI, GST, fire safety, pollution control, etc.). The process is tedious and time-consuming.
- Training and Skill Gaps: Standardized staff training is critical in franchising, but often under-delivered in India. Franchisees face issues in hiring and retaining skilled manpower who can uphold brand standards.
- Lack of Franchisee Support and After-Sales Service: Once the initial training is over, many franchisors reduce handholding. Absence of ongoing mentorship or troubleshooting leads to business stagnation or failure.
Conclusion
In India, opening a franchise offers business owners an opportunity to take advantage of well-known brands and tested business plans. However, careful preparation, adherence to the law, and a dedication to upholding brand standards are necessary for this endeavour to succeed. In India, Franchisees can create a profitable and long-lasting business by adhering to best practices, meeting regulatory standards, and comprehending the legal structure.
