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Master
Franchise Agreements
Master
franchising agreements (also known as Sub-Franchise agreements) offer
the opportunity for an individual (Master Franchisee) or corporate
entity to purchase the rights to sub-franchise a franchisor’s business
concept within a specific territory, region, or state. These rights
are secured by an initial franchise fee charged by the Franchisor.
This initial investment may vary in size depending on a number of
factors, including the size of the territory purchased.
Generally,
master franchising agreements not only give the Master franchisee the
rights to offer and sell individual franchises, but also the rights to
collect a pre-determined percentage of the franchise fees and
royalties generated by each unit sold in a designated territory. The
size and percentage of these fees will vary depending on the
particular agreement; but in many agreements the fees are often split
between the franchisor and master franchisee.
Depending upon
the agreement, the master franchisee may also be required to open a
certain number of units in a specific time frame or schedule, and may
also be required to open and operate one or several units of their
own. In general, Master franchisees will also be responsible for
providing a certain level of ongoing support (training, recruiting.)
and services to the franchisees within the designated territory.
Area Development
Agreements
In general,
franchise area development agreements offer the opportunity for an
individual to secure the rights to open and develop a specific number
of units in a designated territory, and to solicit prospective new
franchisees for the Franchisor in that territory. Unlike master
franchise agreements however, the area developer dose not actually
sell or award new franchises- this responsibility remains solely with
the Franchisor.
Because the
Area developer’s responsibilities are not as broad as Master
franchisees, depending upon the agreement, they sometimes do
not receive or share with franchisor any of the royalty fees generated
by each unit opened in the territory. More often then not however, the
area developer will receive a portion of the initial franchise fee as
compensation for recruiting a new franchisee.
Multi-Unit
Agreements
Multi-unit
franchise agreements in general allow a franchisee the rights to
operate more than one franchise in a defined geographic area where
population demographics will support multiple units. In general the
franchisor will limit the number of units a franchisee can open from
anywhere from to 2 to 5 units, however some franchisors may offer the
opportunity to open much larger numbers of locations. As with any type
of franchise agreement, you should seek legal counsel to review all
documents before moving forward.
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