Franchising lets a proven brand grow through independent operators, and it is booming across Pakistan in food, retail, education and services. But because the country has no dedicated franchise statute, the entire relationship rests on one document: the franchise agreement. Get it right and both sides know exactly where they stand; get it wrong and you are left with a weak contract and unprotected brand. This guide walks through what the agreement must cover, gives you a sample skeleton to work from, and flags the tax, stamp and foreign-exchange rules that catch people out. Need a version tailored to your brand? Speak to our contract drafting team.
What a franchise agreement is - and when you need one
A franchise agreement is a written contract in which a franchisor licenses a franchisee to run a business using the franchisor's brand, trademarks, systems and know-how, in return for fees. You need one whenever you plan to let another party operate under your name - whether you are a local chain adding outlets or a franchisee bringing an international brand into Pakistan.
Legally, the framework is straightforward but scattered. The core enforceability comes from the Contract Act 1872, which requires a lawful offer, acceptance, consideration and free consent between competent parties. Trademarks are protected under the Trade Marks Ordinance 2001 through registration with the Intellectual Property Organization (IPO Pakistan). Remedies such as specific performance draw on the Specific Relief Act 1877, and where the franchisee operates as a company, incorporation falls under the Companies Act 2017 and the SECP. There is no single "franchise code" - the agreement itself does the heavy lifting.
Key clauses every franchise agreement should contain
These are the provisions that decide how the relationship works and what happens when it ends. Each should be drafted deliberately - never left to a generic form.
| Clause | What it covers |
|---|---|
| Grant & territory | The rights granted, whether the territory is exclusive or non-exclusive, and any limits on opening competing outlets nearby. |
| Franchise & royalty fees | The upfront franchise fee, ongoing royalty (usually a percentage of sales), marketing contribution and payment schedule. |
| Intellectual property licence | Permission to use the trademark, logo, trade dress and systems - and confirmation that the IP stays owned by the franchisor. |
| Term & renewal | How long the franchise runs, renewal conditions, and any renewal fee or re-qualification requirement. |
| Obligations & standards | Brand standards, operating manual compliance, minimum performance targets, reporting and audit rights. |
| Training & support | Initial and ongoing training, supply arrangements, and marketing or operational assistance from the franchisor. |
| Confidentiality & non-compete | Protection of trade secrets and the operating manual, plus restrictions on competing during and after the term. |
| Termination & post-term | Grounds for termination, notice periods, and what the franchisee must stop doing (de-branding, returning materials) after exit. |
| Governing law & disputes | Choice of Pakistani law, jurisdiction, and whether disputes go to arbitration or the courts. |
For the confidentiality and restraint elements, many franchisors bolt on a standalone NDA. If your model involves regular product supply to outlets, pair the franchise agreement with a supply agreement.
Sample franchise agreement format
Below is a generic skeleton to show how the clauses fit together. It is a starting point only - the placeholders in brackets must be completed and the whole document reviewed by a lawyer before you sign anything.
Compare the drafting style with our other business templates, such as the service agreement and shareholders agreement, or browse the full library on our legal forms page.
Stamp duty, registration and execution
A franchise agreement should be executed on stamp paper to give it evidentiary strength - a contract on plain paper can still be valid, but stamping protects you if it is ever challenged. Stamp duty is a provincial charge under the Stamp Act 1899, and the rate for agreements differs across Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan and Islamabad. Because the amount varies by province and by the values involved, do not rely on a fixed figure - confirm the current stamp value with a lawyer before execution.
Note that buying stamp paper is not the same as registering the agreement. Registration under the Registration Act 1908 is only compulsory where an interest in immovable property is transferred. Separately, the franchisor's brand should be registered as a trademark with IPO Pakistan, and a franchisee company must be incorporated with the SECP - see our guides on private limited company registration and partnership firm registration.
Foreign franchisors: forex and tax
If royalties are paid to a franchisor outside Pakistan, remittance is governed by Chapter 14 of the State Bank of Pakistan Foreign Exchange Manual, which caps both the fees and the term. As a broad guide, service sectors such as international food chains face tighter limits (a lower lump-sum cap, recurring royalties capped as a percentage of net local sales, and a shorter maximum term) than manufacturing. FBR withholding tax also applies to royalties paid abroad. These limits change and are heavily fact-dependent, so structure any cross-border franchise with professional advice via our corporate services team.
Frequently asked questions
Is a franchise agreement legally valid in Pakistan?
Yes - it is enforced as a contract under the Contract Act 1872. There is no separate franchise law, so the document's own terms govern the relationship.
Does it need to be registered?
Not compulsorily, unless it transfers an interest in immovable property. It should be on stamp paper, and the brand should be a registered trademark with IPO Pakistan.
How much stamp duty applies?
Stamp duty is provincial and varies between Punjab, Sindh, KP, Balochistan and Islamabad. Confirm the current value with a lawyer before signing.
Can I pay royalties to a foreign brand?
Yes, but within the caps in Chapter 14 of the State Bank Foreign Exchange Manual, and after FBR withholding tax on royalties paid abroad.
Can I just use a template as-is?
No. A template is a starting point. Fees, territory, IP, forex and tax terms should all be tailored to your business by a lawyer before execution.