Expansion through set up of franchised stores has become one of the preferred business models for retailers in recent times. The Indian regulations do not provide for any specific legislation regulating franchise arrangement in India. One of the prominent reason being the intricacy of the relationship between the parties and the applicability of various laws depending on the nature of such relationships. Thus, the foremost expectation from the Union Budget 2011-12 would be to grant long awaited legitimacy to the franchise business.
The laws regulating franchising in India come within the ambit of Indian company law under the specific heads relating to contract, agency, distribution, leasing, assignment, securities, financial investments, intellectual and other legislations, which may become applicable in particular case. Another important aspect which needs clarity is the tax implications in the franchise business such as the applicability of local sales tax, service tax, property tax, and withholdings tax. Further, how the franchise arrangement is structured and the existence of treaties while dealing with other countries may have considerable influence on the structure adopted between the parties. Read more.