While franchising as an innovative way of expanding a business into new marketplaces has spread all around the world, different countries have different laws which are applicable to franchising.
In the United States of America there are a range of laws governing the franchising industry. These laws govern the franchisor-franchisee relationship requiring all franchise offerings to be registered and franchisors to provide thorough disclosure documents. Other countries with a high degree of franchise regulation include Australia, Brazil and Malaysia.
In many other regions of the world there are no specific laws in place governing the franchise industry. In these places more general laws are applicable to the franchise industry such as in the European Union where franchise relationships are governed by competition laws.
In India while there are no specific franchise laws, there are a range of laws and regulations that can be made applicable to franchising. These laws include those addressing competition, consumer protection, intellectual property, labour, property and of course taxation.
The following is a list of the common laws relating to franchising in India:
The Indian Contract Act of 1872 governs all aspects of franchise contracts including the franchise offering, acceptance, consideration, validity, breach and the termination of the franchise contract. The act also ensures that the parties consent freely and are competent to contract.
The Competition Act was enacted by the Competition Commission of India in 2002 but did not come into full effect until 2009. The act aims to promote competition and freedom of trade, protect consumers and prevent anti-competitive agreements and activities that have an adverse effect on competition in India. In franchising The Completion Act aims to ensure that tie-in arrangements, exclusive supply and distribution agreements and resale price maintenance do not inhibit competition in the marketplace.
There are four acts covering intellectual property rights (IPRs) in India; The Copyright Act (1957), The Patents Act (1970), The Trademarks Act (1999) and the Designs Act (2000). These rights are essential to the survival of the franchise industry and provide protection for trademarks, patents and registered designs and allow legal actions to be brought against third parties for infringement of these rights.
The Consumer Protection Act was initiated in 1986 to provide recourse for consumers who receive defective goods or experience unsatisfactory service. Under these laws consumers are encouraged to file complaints and could file an action against a franchisor, a franchisee or both depending on the nature of the franchise agreement.
Established in 1999, this act governs payments in foreign currency and is generally applicable to cross-border franchise arrangement.
There are a host of labour laws in India that may be applicable to franchises therefore it is important that the franchisee and franchisor are aware of these and that responsibilities in relation to workforce are clearly delineated in the franchise agreement.
The Income Tax Act of 1961 governs the tax aspects of any franchise in India and also that a cross-border franchisor comply with local tax regulations with respect to any applicable tax treaties.
Enacted in 1996 The Arbitration and Conciliation Act governs the India law of domestic and international arbitration. This law may come in to effect in the case of franchisee-franchisor disputes.
The Provincial Insolvency Act of 1920 comes into effect in the case of individual franchise unit or franchise chain financial insolvency.
The franchising agreement is also subject to all rules issued by the Reserve Bank of India (RBI).
Franchise Asia recommend that all entrepreneurs considering investing in a franchise opportunity engage a franchise lawyer to guide them through the exciting and challenging process of buying a franchise.
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