Starting an entrepreneurial venture from scratch is daunting. But consider the possibility of being able to partner with a well-established brand, copy a successful model, and have complete backing in the process. That’s what the franchise model accomplishes—and it’s a rage in India.
From food chains like Domino’s to shopping chains like FirstCry and Lakme Salon, franchise outlets are in abundance. They provide new entrants to the business with less risk and more support.
If you are keen to start a franchise business in India, this step-by-step guide will guide you through the legal process, setup process, cost estimation, and common pitfalls to avoid—so that you are properly prepared before you invest your hard-earned money.
What is a Franchise Business?
In simple terms, a franchise is a business agreement between the owner of the brand (franchisor) and the operator/investor (franchisee).
The franchisor permits you to utilize their name, products, services, and business practices. You typically pay an initial franchise fee and ongoing royalties (some percentage of your sales or profits).
This model benefits both parties: the franchisor gets to grow the business without having to own every store, and you (the franchisor) have a business shortcut with added support and trust.
Why Franchising is a Good Idea in India
India’s franchise industry is booming, and there are many reasons for that.
- Lower Risk: You’re not reinventing the wheel—you’re running a successful business.
- Brand Trust: The customers have trust in the brand.
- Support System: Franchisors provide end-to-end support from installation to training.
- Marketing Support: Oftentimes you will have local and national advertising campaigns.
- Financing becomes simpler: NBFCs and banks are keen on providing finance for proven franchise models.
Types of Franchise Models You Can Choose From
No franchising one-size-fits-all exists. Depending on your budget, goal, and category of franchise business, you can select from a variety of franchise models:
1. Product Franchise
You are selling products under the franchisor brand-name—most notably in car dealerships.
2. Business Format Franchise
This is the most prevalent form. You adopt the brand’s entire manner of doing and being: decor, uniforms, training, advertising, and so on. Check out Domino’s or Subway.
3. Franchise Manufacturing
You make products utilizing the process or formula of the franchisor and market them in the name.
4. Job Franchise
Perfect for home-based businesses or business operated from a very small office. Typical for repair or courier businesses or mobile maintenance.
5. Investment Franchise
You invest the capital, and someone else does the daily work. Used most frequently in businesses like hospitality, gyms, and beauty salons.
Selecting the Proper Business Form
Before you get started, you must include your business in the correct legal structure. You have the following as your best options:
- Sole Proprietorship – Easy to form but not for large franchises.
- Partnership Firm – Ideal for two or more owners but requires a partnership deed.
- LLP (Limited Liability Partnership) – Provides legal protection and flexibility.
- Private Limited Company – The most suitable choice for the majority of franchises. It establishes credibility, restricts personal risk, and provides future capital.
For serious business investment in franchises, the most secure and professional choice is a Private Limited Company.
Legal standards to form a franchisee in India
India doesn’t have any franchising statute, although there are some rather significant legal issues you need to attend to:
1. Franchise Agreement
This is your master agreement with your franchisor. It must include:
- Length of the contract
- Royalties and franchise charges
- Functions and duties
- Area rights (exclusive or shared)
- Branding and trademark application
- Training and assistance
- Exit or termination conditions
Tip: Have this document professionally reviewed by a law professional prior to signing.
2. Trademark Licensing
The franchisor will be required to possess a registered trademark and legally license it to you. This will ensure you are utilizing the brand name/logo in an approved manner.
3. Business Registration
You must register your company as a legal entity with the Ministry of Corporate Affairs (MCA). You will need documents like:
- PAN & Aadhaar
- Business address confirmation
- MOA & AOA (for firms)
4. GST Registration
If your turnover during a year is over ₹20 lakh (or ₹10 lakh in some states), you are required to register under GST. Even some franchisors mandate it.
5. FSSAI License (For Food Franchises)
Operating a food business? You will require an FSSAI license. The category is based on your anticipated turnover:
- Basic License
- State License
- Central License
6. Shop & Establishment License
This is something every store or office business needs. It includes labour legislation that encompasses rules regarding employment working time as well as worker conditions etc.
Depending on your location and type of business, you might also need:
- Fire safety certificate
- Pollution clearance (if required)
- Municipal trade license
- Signboard/hoarding permits
How to Open a Franchise in India (Step-by-Step)
Below is the step-by-step process of opening your franchise:
Step 1: Select the Proper Franchise
Explore a number of possibilities. Look into brand reputation, success rates, support offered, and investment required.
Step 2: Read the Franchise Agreement.
Do not ever skip legal review. Read every clause, especially fees, exit conditions, and liabilities.
Step 3: Register Your Business
Choose your company type (if at all possible, a Private Limited Company) and register with MCA.
Step 4: Get All Licenses
Enroll under GST, FSSAI (if needed), Shop License, and whatever local license you need.
Step 5: Get a Good Location
Choose a premise that will be suitable for your target market and franchisor’s design and branding needs.
Step 6: Staff Recruitment and Training
Most franchisors provide recruitment and training. Make sure your personnel is aware of the brand values and procedures.
Step 7: Open Your Franchise
Once your interiors, your stock replenishments, and your system testing have been completed, open your outlet with marketing schemes—typically funded by the mother company.
Cost of Opening a Franchise in India
The initial investments in a franchise vary by brand, size, and industry type. The following is a rough estimate:
- Small food or retail kiosks: ₹5 to ₹10 lakhs
- Medium-sized QSR restaurants: ₹15 – ₹30 lakhs
- Departmental chains (apparel, electronics): ₹20 – ₹50 lakhs
- Salons/clinics (service-based): ₹20 – ₹40 lakhs
- Full-service restaurants/hotels: ₹50 lakhs – ₹1 crore+
Remember not to forget
- Franchise fee
- Interior designing
- Equipment/inventory
- Licensing fees
- Salaries and training
- Royalty payments
- Advertising and software expenses
Have a sound financial plan in place before you take the leap.
Common Mistakes to Steer Clear of in a Franchise Business
Franchising is easy but with a high rate of drop-out because of lack of planning. Steer clear of the following:
Enforcing contracts under judicial supervision Underestimating traffic or location Ignoring regulatory requirements Choosing brands with no market presence in the real world Avoiding detailed cost estimates Failure to connect with existing franchisees Due diligence needs to be practiced. Never purchase a franchise on buzz alone.
Final Thoughts
Franchising is a good entry point into entrepreneurship in India—if you desire a well-known brand and a support system. But it’s not a license to overnight success. You still need to comply with legal procedures, manage your finances, and play it safe. The right franchise can reap great rewards—but only if you treat it like a serious business from Day 1.
Need assistance with the legalisation of your franchise?
From company and franchise registration to GST and FSSAI licenses, Legal Dalal can assist you with documentation while you get on with making your dream business a reality. ur company, builds customer confidence, and allows for easy growth.
