A company in which a parent company makes its business model and brand available to a third party is referred to as a franchisee. A franchise is managed by individuals, but is stigmatized and monitored by much larger multinationals. The Contracts Act deals with agency contracts. An agency is created when a person is busy committing acts for or representing another person. Franchise agreements are generally developed to clarify that the parties do not intend to create a senior agent relationship. In the event of an agency relationship, the provisions of the Contract Act dealing with such relationships would apply, including primary responsibility for the representative`s actions in certain circumstances, such as the unlawful act.B. There could also be tax consequences for the franchisor if the representative is considered a permanent franchisor institution in India. Normally, payments made under franchise agreements are taxed in India with direct and indirect taxes. Income tax is paid by a franchisee on the income from franchise transactions. If the franchisee provides a service to consumers (for example. B a restaurant), the tax on goods and services will be due by the company that provides the services.
With a franchise contract format, the franchisor can set guidelines on how the franchisee supports the business and branding. Penalties for mismanagement or trademark infringement are also set out in the agreement to protect the brand name at all times. In structuring their legal record, franchisors should ensure that contracting parties are able to meet their obligations, that the franchisee`s promoters receive appropriate protection or compensation, and that available remedies are aggressively pursued to protect the franchisor`s interests. The dispute between McDonald`s and one of its Indian franchisees is an example. McDonald`s terminated the franchise agreement for non-payment of royalties, but the termination was challenged by the franchisee and the franchisee continues to use the company`s system, although the termination is made on the basis of the interests of consumers, employees and sellers. Both parties challenged the dispute at various levels in the Indian judicial system and through arbitration in London prior to the conclusion of an agreement.33 Indian foreign exchange control legislation9 is relevant to various aspects of franchise agreements, including payments between Indian franchisees and international franchisees. Indian franchisees may transfer royalties and royalties for technical services to international franchisors without limitation and without the agreement of the RBI. Some other commercial payments may also be made without authorization. If the proposed payment to an international franchisor does not fall within the permitted categories, the Indian franchisee needs the express authorization of the RBI to make the payment.