Written By: Gouri Ghosh

Opening a business services franchise in India can be a thrilling and lucrative opportunity, particularly if you are one of those people who enjoys working with a reputable brand but would like to have your own business as well. But just as with any other business, franchising has its own legal duties. If you are looking to venture into this business, learning about the business services business licenses, applicable laws, and contracts is simply imperative.

For example, companies such as TeamLease Services (recruitment and staffing) or DTDC (courier and logistics services) run successful business services franchises in India, providing partners a tried-and-tested model with strong market demand.

In this blog, we'll guide you through the legal landscape, licenses needed, and compliance regulations so that you can establish a franchise business the correct way, without legal setbacks in the future.

Knowing Business Services Franchising

A franchise of a business services company usually provides intangible services like marketing, consulting, IT support, recruitment, logistics, training, or financial services. Rather than creating a brand from scratch, you enter an agreement with an established company (the franchisor) and provide their services in your market.

The advantage is that you can leverage their successful business systems, advertising techniques, and brand name recognition.

But, as with any partnership, there are franchise rules and regulations in India that must be followed. 

Legal Framework: What Laws Apply?

In India, there is no independent franchise law, not that franchises are regulated under a mixture of existing laws related to conducting business. If you intend to operate a business services franchise in India, you'll need to understand how these laws apply:

1. Indian Contract Act, 1872

Your franchise agreement is a contract, and therefore, it needs to comply with the principles enshrined in this Act, such as legality of purpose, free consent, and enforceability. In case of a dispute between the franchisor and franchisee, this Act will be the first point of reference.

2. Consumer Protection Act, 2019

This act has been framed to safeguard the rights of customers. As you're operating services on a franchise basis, you are liable for service quality and upholding customer rights. Dubious claims or poor service can bring legal issues under this Act.

3. Competition Act, 2002

This law prevents unfair trade practices and monopolistic behavior. For example, if a franchisor restricts you from offering competitive services beyond reason, that could be considered anti-competitive. It ensures that market fairness is maintained even within a franchising structure.

4. Foreign Exchange Management Act (FEMA)

If your franchisor is outside India and you're remitting fees, royalties, or entering into cross-border contracts, FEMA rules will apply. The law prescribes how money can be remitted out of the country, what disclosures are needed, and what authorizations must be obtained from the Reserve Bank of India (RBI).

5. Income Tax Act, 1961

This is where taxation intersects. Franchise profits, royalties, and other sources of income need to be accounted for under the Income Tax Act correctly. And if you're paying or receiving royalties abroad, there could be withholding tax requirements. 

Why is this important?

Learning these laws is not merely about remaining compliant—it's about safeguarding yourself. If you fail to grasp how these laws impact your franchise business, you might be subjected to penalties, conflicts, or even a business shutdown. A solid legal foundation is what keeps your business running smoothly and growing securely.

Franchise Agreement: Your Legal Backbone

It documents everything—what you can do, what you must provide, and the consequences when something goes amiss.

Though registration of a franchise agreement in India is not mandatory by law, it's important that this agreement be well-drafted and legally applicable. Having a legal professional scrutinize the document is highly advisable—it's your safety net.

What must be in your franchise agreement?

Franchise Fees and Royalties: How much you'll pay to the franchisor, when, and under what circumstances.

• Term and Renewal: For how long the agreement will run, and how you can renew or depart.
• Territorial Rights: Whether you'll have exclusive rights to a particular region or share it with other franchisees.
• Support and Training: What assistance will the franchisor offer to get your business operational?
• Use of Branding and IP: Clear permissions to use the franchisor’s logo, name, technology, or marketing materials.
• Dispute Resolution: How conflicts will be handled—through courts, arbitration, or mediation.

If you’re dealing with a foreign franchisor, make sure the agreement also meets RBI and FEMA guidelines. Cross-border deals need extra care.

Licenses Needed for an India Business Services Franchise

Many people ask us: "What licenses do I need to open up a business services franchise in India?" The reply is dependent on where you are, the type of services you are providing, and the structure of your business—but here's a rough rundown to help you.

Business Services Business Licenses:

Business Registration

Select a legal structure that fits your business—Sole Proprietorship, Partnership, LLP, or Private Limited—and register it with the Ministry of Corporate Affairs (MCA).

GST Registration

If your turnover is over the government limit (currently ₹20–40 lakhs based on the state), or if you're selling services interstate, GST registration is obligatory.

Shop and Establishment License

This one is issued by your local municipality and is required for any physical office or commercial storefront, even if your business is service-oriented.

Trade License

If your franchise involves regulated services—like finance, recruitment, or particular forms of consulting—you may be required to have a trade license to lawfully operate.

Professional Tax Registration

There are states that impose a professional tax on employees and employers of service businesses.

EPF and ESI Registration

If your employee count exceeds the minimum number (generally 10 for ESI, 20 for EPF), you'll need to register for these labor compliance programs.

Foreign Franchises: What's Different?

If you're thinking of opening an Indian business services franchise with a foreign (foreign-based) franchisor, there are extra legal layers you'll have to get through. Foreign collaborations, as opposed to domestic franchising, are associated with cross-border transactions, use of foreign brands, and usually more intricate financial arrangements.

Here's what you should remember:

Foreign Direct Investment (FDI) Compliance

India opens up to FDI in all sectors under the automatic route, though you have to make sure your franchise model complies with the sector-specific FDI policy. For services-based companies, 100% FDI is generally allowed, but the structure is critical.

FEMA Regulations:

If you’re making payments like royalty, franchise fees, or license fees to a foreign entity, these must be in line with FEMA rules.

RBI Approval for Royalty Payments:

Sending royalty or license fee payments abroad (repatriation of money) in foreign exchange is usually subject to RBI requirements. You usually need to report the payment or obtain prior authorization, particularly if payments are above certain limits.

Trademark & IP Issues:

Register or recognize the franchisor's trademarks and intellectual property in India. This secures your right to use the brand and protects you from legal problems.

Taxation on Foreign Payments:

 You need to know the taxation implications and if double taxation avoidance agreements (DTAA) exist.

Pro Tip: Engage a legal expert who is aware of international franchising. They will assist you in structuring the deal appropriately, submitting necessary paperwork, and making you 100% compliant.

Licensing and Franchising: Pros and Cons

It may provide a proven path to business ownership, but it's not without its pitfalls.

Pros

• Brand Recognition: You begin with immediate brand recognition and customer credibility, difficult to establish when starting fresh.
• Training and Operational Support: Most franchisors provide initial training and ongoing support, such as SOPs, software, and systems.
• Marketing Support: Use of national or regional marketing campaigns, branding imagery, and strategy advice.
• Quicker ROI: Having a pre-existing system means you have a better chance of generating returns promptly than an independent start-up.

Disadvantages

• Restricted Freedom: Franchisors tend to restrict policies on pricing, suppliers, branding, and business operations. This can restrict creativity or flexibility.
• Royalty and Fee Obligations: You could owe an initial franchise fee, along with continuing royalties or a percentage of revenue, no matter how profitable.
• Compliance Pressure: You have to follow the franchisor's instructions to the letter and have quality controls in place at all times.
• Risk of Disputes: Ambiguous contracts or unrealistic promises can create friction with the franchisor, particularly when legal provisions are not clearly established.

Compliance Checklist: Start on the Right Foot

In conclusion, here's a streamlined compliance and legal checklist:

Register your business entity with MCA

• Get GST and local licenses

• Register trademarks and IP if necessary

• Ensure legal status and ownership of the brand by the franchisor

• Ensure compliance related to employees (PF, ESI, etc.)

• Consult a franchise or business attorney

Conclusion

Opening a business services franchise in India can be an extremely fulfilling move, but only if you start with the right legal grounds. From acquiring proper licenses for a business services franchise in India to making sure your franchise deal is properly drafted, each detail counts.

Don't jump into it blindly; take legal counsel, be aware of the requirements, and above all, be certain about your rights and obligations.

With proper arrangement, your franchise company won't merely expand—it will flourish.

Disclaimer: The brands mentioned in this blog are the recommendations provided by the author. FranchiseBAZAR does not claim to work with these brands / represent them / or are associated with them in any manner. Investors and prospective franchisees are to do their own due diligence before investing in any franchise business at their own risk and discretion. FranchiseBAZAR or its Directors disclaim any liability or risks arising out of any transactions that may take place due to the information provided in this blog.