What Are Master Franchising, Area Development, & Multi-Unit Franchise Agreements?
Master Franchise Agreements & Licenses
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, state or country. These rights are secured by
an initial franchise or license 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.
Franchise 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 as 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.
Franchise 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.
