Master franchise agreements in India

Several factors contribute to global brands to the master franchise agreements in India, including the benefits to attain knowledge of the Master Franchisee with the local environment, local sales and marketing know-how of the master franchisee for the immediate availability of sales and marketing channels, low investment, the allocation of costs; negligible regulatory approvals, the obligation to employ local workers and therefore less financial risk. In addition, the regulatory limitRetail trade by foreign companies is an important factor for the master franchise arrangements in India boom.

Master Franchising:

Due to the nature of the activities involved and the account are the master franchise agreements rather complex documents. A typical franchise agreement allows the franchisee in the territory of development under the franchisor's brand and trademarks, with or without permission to produce products locally,provides guidelines for the management of the business and returned to the franchisor. Depending on the solution, a Master Franchise Agreement would govern better:

Permission °, and limited use of the mark in the area;

· Transfer of know-how on manufacturing, advertising or marketing;

· Financial income for the franchisor, including royalties and fees for services;

· How to rename subcontractorsto produce and sell sub-franchises, the products at various locations in the area;

· Control subcontractors and sub-franchises through master franchise;

· Process of production including the approval of samples and quality control;

• Provision of dedicated employees by the franchisee;

• The look of the franchise and the training of executives of sale;

Annual penetration ·Objectives;

Minimum share purchase / import commitments;

Interfaith marketing, distribution of advertising costs and the support of the franchisor;

Regular Periodic Report by the franchisee;

• Duration, extension or termination of contract;

· Events of default to correct pre-closure, cessation, etc;

· Exit options, unless one or both parties want to continue;

° Obligations Mail, including the closureResponsibilities of business contacts; return / destruction of material, the treatment of unsold stocks, freight and destruction of sub-standard, if necessary;

Regulations · on privacy, security, intellectual property and insurance.

Create the test of legitimate trademark owners, and to maintain the reputation of market forces to the stage to describe the intrinsic processes and require their participation in the crucialDecisions.

Formalization of a franchise agreement:

Most franchisors generally offer their franchise contract for the beginning and it is proposed to ask the franchisee, revision (if revisions do not appreciate too much the franchisee in the interest of consistency of standard agreements on all areas).

From a contractual point of view, while the formalization of the agreements, a franchisee must seek to fill any potential gaps in the identification and analysisthan "What if?" Situations. Groped to examine the pattern agreement for the contract vis a vis your detailed financial, technical, production, marketing, human resources, marketing and business planning skills. The practicality of the objectives and deadlines is essential to avoid a default situation later.

From a financial standpoint, while the analysis of initial costs and ongoing costs for the franchisee to acquire the necessary technical know-how and skillsManage the company, the importation of initial inventory, transportation of material, equipment, leasing and maintenance of franchised stores, translation / adaptation of manuals, market research, local salaries and taxes. The franchisee may require flexibility on payments to the franchisor and the change of business and other purposes from time to time.

From the perspective of the regulation of exchange rates, an Indian franchise, license fees towards the trademark license responsibilitiesup to the amount of 1% of domestic sales and 2% of exports, without prior government approval. If the licensor and technical know-how to the licensee in India, the Indian company, without additional license fees up to 5% of the contract of domestic sales and 8% of exports and flat up to U.S. $ 2,000,000, without prior government approval. provided for both trademark license and technical know-how are payments for technical know-how subsumed licensing rights for the trademark license. The payment of royalty onPercentages would be above the prior consent of the Government specified necessary.

The Indian affiliate review the agreement from the perspective of efficient tax structure. Given the broad definition of "franchise" fee for service, the fee for a master franchise agreement typically would attract service tax. Moreover, if the agreement provides for the transfer of technical know-how to the franchisee, or a special service for other purposes, including the necessaryPlans, drawings, publications and the provision of technical personnel may be subject to payment of R & D CESS.

In some schemes should be separate trademark license fees and royalties, franchise fees, taxes can "know-how, etc. separate agreements may reflect a less complicated structure allows the payment to avoid tax disputes. Given the complexity of the problem and possiblefinancial risks and legal care and caution must be exercised by the franchisee, while the formalization of Master Franchise Agreements and the help of experts or experienced staff of licensing agreements is advisable.