National Initiative for Developing and Harnessing Innovations- Seed Support System (NIDHI-SSS)

What Is The Meaning of Franchising a Business?

Franchising is a business model where a franchisor grants the rights to an individual (franchisee) to operate under its brand, using its products, services, and business processes. The franchisee pays a fee and agrees to operate under the franchisor’s guidelines in exchange for brand licensing, training, operational support, and marketing assistance.

The franchising model benefits both parties:

• Franchisor Benefits: Rapid expansion, increased brand reach, and revenue from franchise fees.
  
• Franchisee Benefits: Access to a recognised brand, reduced startup risk, and operational guidance.
  

Key aspects of franchising include:

• Brand Licensing: The franchisee gets permission to use the franchisor's brand name and trademarks.
  
• Operational Support: Training, marketing, and business strategy support are provided.
  
• Profit-sharing Agreements: Franchisees pay royalties or a percentage of revenue to the franchisor.
  

Types of Franchises

Franchises can be categorised based on their structure and operational model:

Product Distribution Franchise:

• Franchisee sells the franchisor’s products under its brand.
  
• Examples: Automobile dealerships (Maruti Suzuki), and soft drink bottlers (Coca-Cola).
  

Business Format Franchise:

• Franchisee adopts the entire business model, including operations, branding, and marketing.
  
• Examples: McDonald’s, Domino’s, KFC.
  

Manufacturing Franchise:

• Franchisee manufactures and sells the franchisor’s products under its brand name.
  
• Example: Food and beverage brands allowing third-party bottlers.
  

Job Franchise:

• A low-cost model where individuals operate small-scale service businesses.
  
• Examples: Cleaning services, travel agencies, real estate consultancy.
  

How Long Does It Take To Franchise a Business?

Franchising a business typically takes between six months to two years, depending on factors like:

• Industry type and regulatory requirements.
  
• Business readiness and operational scalability.
  
• Development of legal and training documents.
  
• Marketing efforts to attract franchisees.
  

How Much Should It Cost To Franchise a Business?

The cost to franchise a business can vary significantly based on factors like industry, business model, and support provided. On average, franchising a business may cost between ₹5 lakh to ₹50 lakh or more in India. Key expenses include:

• Franchise Fee: ₹2 lakh to ₹10 lakh (varies by brand reputation).
  
• Legal and Registration Fees: ₹50,000 to ₹2 lakh.
  
• Training and Support Costs: ₹1 lakh to ₹5 lakh.
  
• Marketing and Branding Expenses: ₹1 lakh to ₹3 lakh.
  
• Infrastructure Setup: Varies depending on the business type.
  

Additional factors like franchise location, infrastructure requirements, and marketing strategy impact the overall investment.

Advantages of Franchising a Business

1. Rapid Expansion: Scale business operations quickly with minimal capital investment.
   
2. Lower Financial Risk: Franchisees fund their business setup, reducing financial burden.
   
3. Brand Recognition: Established branding makes it easier to attract customers.
   
4. Operational Support: Franchisees receive training, marketing, and business guidance.
   
5. Access to Motivated Franchisees: Entrepreneurs invest time and money, ensuring dedication to success.
   

Disadvantages of Franchising a Business

1. Loss of Control: Franchisees operate independently, which can lead to inconsistencies.
   
2. Reputation Risk: Poorly managed franchises can damage brand image.
   
3. Legal & Financial Complexity: Requires detailed agreements and ongoing compliance.
   
4. Ongoing Training & Support: Continuous investment in franchisee development is necessary.
   

Franchise Vs Licensing: What’s The Difference?

How to Start a Franchise Business - 8 Key Steps

Step 1: Determine If Franchising is Right For Your Business

Before diving into franchising, evaluate whether your business is scalable, profitable, and replicable. Ask yourself:

• Is there consistent demand for my product or service?
  
• Can my business model be easily duplicated in different locations
  
• Do I have strong branding and operational processes in place?
  

Not all businesses are fit for franchising. A successful franchise model requires a proven track record, solid profit margins, and strong brand appeal to attract potential franchisees.

Step 2: Protect Your Business’s Intellectual Property

Your brand is one of your most valuable assets. Before offering franchises, secure trademarks, copyrights, and proprietary processes to prevent misuse and ensure brand consistency.

Step 3: Prepare Your Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is a legal document that provides prospective franchisees with full transparency about their business. This document must comply with franchise laws and typically includes:

• Franchise fees and ongoing costs
  
• Training and support provided
  
• Franchisor and franchisee responsibilities
  
• Earnings potential (if disclosed)
  
• Legal obligations and dispute resolution process
  

A well-structured FDD builds trust with potential franchisees and helps you stay compliant with franchise laws.

Step 4: Draft a Franchise Agreement

The franchise agreement is a legally binding contract outlining the rights and responsibilities of both the franchisor (you) and the franchisee. Key elements to include:

• Operational guidelines – How franchisees must run the business
  
• Fee structure – Initial franchise fees, royalties, and marketing fund contributions
  
• Territory rights – The defined area where the franchisee can operate
  
• Training and support – What assistance franchisees will receive
  
• Exit clauses – Terms under which a franchise can be sold or terminated
  

This document ensures both parties are aligned and protects your brand from misuse.

Step 5: Register Your Company

Depending on your state and region, you may need to register your franchise with government authorities before selling franchise units. Registration is not mandatory, but it is required to obtain GST registration depending on the turnover.

Head over to Razorpay Rize to Register your Company.

Step 6: Compile an Operation Manual

A franchise operations manual is a step-by-step guide that helps franchisees run the business successfully while maintaining brand consistency. It should cover:

• Day-to-day business processes
  
• Hiring and training staff
  
• Customer service guidelines
  
• Marketing and advertising strategies
  
• Financial management and reporting
  

Step 7: File or Register Your FDD

Once your FDD is finalised, keep it securely stored for easy access and updates as needed. While the FDD is a mandatory document, filing requirements vary by state.

Step 8: Set Strategy To Achieve Your Sales Goal

Develop marketing and recruitment strategies to attract the right franchise partners. The strategy should be tailored to your business, community, and growth objectives. Here are some effective ideas to consider:

• Provide a referral incentive for those who bring in qualified franchisee applicants.
  
• Develop a strategic marketing plan from the start to capture attention.
  
• Recruit sales professionals who understand your business and its story.
  

5 Strategies to Help You Succeed at Franchising

1. Maintain Brand Consistency: Implement strict guidelines for uniformity across locations.
   
2. Select the Right Franchisees: Screen candidates for skills, experience, and commitment.
   
3. Provide Ongoing Training & Support: Regularly update franchisees with best practices.
   
4. Implement Effective Marketing Strategies: Invest in advertising and localised promotions.
   
5. Ensure Strong Financial Management: Monitor franchise performance and optimize cost structures.
   

Case Studies of Successful Franchise Businesses

Franchising is a proven business model that allows entrepreneurs to leverage established brands and systems for success. Below are examples of successful franchise businesses, showcasing their revenue, profit margins, and operational highlights.

1. McDonald's

• Industry: Quick-Service Restaurant (QSR)
  
• Investment: ₹6–14 crores
  
• Profit Margin: 50–60%
  
• Break-even Period: 4–5 years
  McDonald’s is one of the most profitable franchises globally due to its standardized operations and strong brand recognition. In India, its franchise model offers high footfall and consistent demand, making it a lucrative investment.
  

2. Baskin Robbins

• Industry: Ice Cream and Dessert
  
• Investment: ₹10–20 lakhs
  
• Profit Margin: 50–60%
  
• Break-even Period: 6–12 months
  With over 800 outlets in India, Baskin Robbins has built a strong presence in the dessert market. Its diverse flavors and year-round demand ensure steady sales and excellent returns for franchisees.
  

3. Haldiram

• Industry: Food and Snacks
  
• Investment: ₹30 lakhs–₹6 crores (depending on store format)
  
• Profit Margin: 50–60%
  
• Break-even Period: 2–3 years
  Haldiram is a trusted name in Indian snacks and sweets. Its franchise model offers multiple formats, including quick-service restaurants and dine-in outlets, ensuring high profitability backed by a loyal customer base.
  

4. Marco’s Pizza

Marco’s Pizza achieved remarkable growth with a revenue increase of 23.5% in one year by opening 113 stores. The brand focuses on strategic revenue-boosting approaches, making it one of the fastest-growing pizza franchises globally.

5. Lenskart

• Industry: Eyewear Retail
  
• Investment: ₹25 lakhs
  
• Profit Margin: Approx. 33%
  Lenskart is India’s largest eyewear brand, offering trendy products such as prescription glasses and sunglasses. With innovative features like "Try Before You Buy," its franchise model generates average monthly sales of ₹9 lakhs, making it ideal for urban markets
  

Final Thoughts

Franchising can be a great way to start a business without building everything from scratch. You get a known brand, a proven business model, and ongoing support but it’s not a shortcut to success. It still takes effort, investment, and commitment to make it work.

The key is choosing the right franchise. Think about what fits your skills, budget, and long-term goals. A great brand in the wrong location or with poor financial planning can still struggle. Do your homework, understand the costs, and be ready to follow the franchisor’s guidelines.

Frequently Asked Questions

What is an LLP Agreement?

An LLP Agreement is a written contract between the partners of a Limited Liability Partnership. It defines the mutual rights, duties, and responsibilities of the partners and outlines how the LLP will be managed.

This agreement acts as a rulebook for the internal functioning of the LLP, covering areas such as profit-sharing ratios, decision-making processes, roles of individual partners, dispute resolution mechanisms, and procedures for adding or removing partners.

In short, LLP Agreement is the foundational legal document that governs the relationship between the partners and ensures smooth day-to-day operations.

Need and Purpose of LLP Agreement

The LLP Agreement is more than just a formality—it's a critical document that provides clarity and structure to the partnership. Here’s why it’s necessary:

• Defines roles and responsibilities: Each partner's role, contribution, and authority are clearly outlined.
  
• Avoids disputes: A well-drafted agreement helps prevent conflicts by setting expectations early.
  
• Facilitates smooth operations: It streamlines internal decision-making and operational protocols.
  
• Profit-sharing clarity: Partners know exactly how profits and losses will be distributed.
  
• Legal safeguard: In case of disputes, courts consider the agreement as a key legal reference.
  

The partnership may face operational confusion and legal complications without a properly executed and stamped LLP Agreement.

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Stamp Duty on LLP Agreement

Stamp duty is a mandatory legal tax imposed on certain documents, including LLP Agreements, to make them legally enforceable. In India, the stamp duty applicable to LLP Agreements is governed by the State Stamp Act of the respective state where the LLP is registered.

The stamp duty amount is typically based on the total capital contribution mentioned in the agreement. While some states impose a fixed fee, others may levy a percentage-based duty. It’s essential for LLPs to pay the correct stamp duty to avoid future legal or financial penalties.

Here’s a quick reference table showing the stamp duty applicable to LLP Agreements based on capital contributions across different states in India.

In New Delhi, the stamp duty on an LLP Agreement is charged at 1% of the total capital contribution.

Factors Affecting Stamp Duty on LLP Agreement in India

The 2013 Act introduced more stringent rules, bringing private companies with share capital under the same requirements to enhance transparency and accountability.

• State of Registration: Each state in India has its own Stamp Act and may prescribe different rates for LLP Agreements.
  
• Capital Contribution: The total contribution by all partners significantly impacts the stamp duty amount- higher contributions often mean higher duty.
  
• Fixed vs. Percentage-Based Fee: Some states charge a fixed amount (e.g., ₹1,000), while others impose a percentage of the capital contribution.
  
• Regulatory Changes: Amendments in central or state laws can lead to changes in the applicable stamp duty rates.
  

Conclusion

Stamp duty on an LLP Agreement is a foundational compliance step that validates your business arrangement. With rates varying from one Indian state to another and being influenced by capital contributions and regulatory changes, it's important to understand the specific requirements applicable to your LLP.

Ignoring or underpaying stamp duty might seem like a small risk at first, but it can lead to legal complications, penalties, and delays if your agreement is ever scrutinised. On the other hand, taking the time to understand and comply with stamp duty requirements ensures your LLP starts on solid legal ground.

Frequently Asked Questions

Is CA Required for Company Registration?

Technically, a chartered accountant is not mandatory to register a company in India. The Ministry of Corporate Affairs (MCA) provides an online portal that allows founders to complete the registration process on their own.

However, company registration involves more than just filing forms- it requires compliance with various legal and financial requirements. While you can handle these steps yourself, professional guidance from a CA can ensure accuracy and avoid costly mistakes.

Who is a CA (Chartered Accountant)?

A Chartered Accountant (CA) is a certified finance expert trained in areas such as accounting, taxation, auditing, and corporate laws. They help businesses navigate complex financial landscapes and comply with statutory norms.

Beyond technical know-how, CAs translate rules into business action. They design accounting systems and controls, prepare accurate financial statements, interpret tax laws (income tax, GST, transfer pricing and international tax issues), and conduct statutory and internal audits to reduce risk. They also support compliance tasks such as preparing ROC filings, tax returns, GST returns, and maintaining books in line with applicable standards.

For startups and MSMEs, they often act as a de facto finance team, building financial models for fundraising, advising on the optimal business structure, preparing due diligence packs for investors, or structuring transactions to be tax-efficient and legally sound.

Why Hire a CA While Setting Up a Company?

Hiring a CA during your company’s setup offers end-to-end support, including:

• Selecting the right company type (Private Ltd, LLP, Sole Proprietorship, etc.) based on your goals and tax implications
  
  
• Handling registrations like PAN, TAN, GST, and Certificate of Incorporation (COI)
  
  
• Drafting key documents such as the Memorandum of Association (MOA) and Articles of Association (AOA)
  
  
• Ensuring tax compliance right from the start
  
  
• Setting up your accounting system tailored to your business
  
  
• Preparing financial statements and projections that appeal to investors and lenders

In short, a CA simplifies the entire process and helps lay a solid foundation for your business growth.

The Legal Requirements for Company Registration

Under the Companies Act, 2013, company registration involves the following key legal steps:

• Selecting your business structure
  
  
• Obtaining a Digital Signature Certificate (DSC) for directors
  
  
• Filing the SPICe+ (Simplified Proforma for Incorporating Company electronically Plus) form with the MCA
  
  
• Preparing and submitting the Memorandum of Association (MOA) and Articles of Association (AOA)
  
  
• Applying for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for tax purposes

While none of these steps legally require a CA, professional guidance can help avoid errors, delays, or non-compliance issues that could cost you in penalties or missed opportunities.

Benefits of Hiring a CA for Company Registration

• Expert handling of complex regulatory and tax matters
• Reduced chances of filing errors and rejections
• Better financial and tax planning from day one
• Time savings and peace of mind

That said, if you decide not to hire a CA, you can always use online platforms that provide comprehensive company registration services, guiding you through each step seamlessly and at competitive prices.

When is a CA Essential for Company Registration?

While not mandatory, involving a CA becomes essential in specific situations such as:

• Registering complex entities like Limited Liability Partnerships (LLPs) registration, sole proprietorship registration companies with foreign directors
• Preparing detailed financial projections and business plans for funding
• Ensuring strict tax and GST compliance, especially if your business deals with multiple states or international transactions
• Handling annual compliances post-registration, including audits and tax filings

In such cases, a CA’s expertise is crucial to keep your business compliant and financially sound.

Can You Register a Company Without a CA?

Absolutely! Company registration is possible without a CA, especially through the MCA’s online portal designed for entrepreneurs to file their incorporation documents directly. The process has been simplified over the years, making it more accessible than ever.

However, registering without professional help means you need to be very thorough with legal and financial nuances. Using an online platform that manages the end-to-end registration process can be a smart alternative- these platforms often offer packages that include form filing, document drafting, and government liaison, all without the higher fees of a traditional CA.

Frequently Asked Questions (FAQs)