(FS2) Multi-Unit Agreements and the Master Franchise

When you have a multiple unit agreement you will need to have two different agreements in place: the area development agreement and the franchise agreement. While it may seem confusing as to why you need these, the fact is that they each serve their own purpose. The area development agreement is what stipulates the rights and responsibilities for the franchisee. The franchise agreement sets out the rules of operation within the franchise as well as gives you the right to operate as a franchise of the company.

 

business franchisingThe thing to keep in mind with this though is that if you do not meet the schedule set out in the area development agreement, then the franchisor has the right to cancel the development agreement. When they happens they will still be able to keep your fee for the area development. This means that you need to make sure you can take on the number of franchises that you are selecting. You also want to make sure that you have the finances to be able to get not only the first store off the ground but the second or third as well to ensure that you do not have any issues down the road.

 

The Master Franchise Relationship

The relationship with a master franchise is very similar to having an area development agreement. There is really only one major difference and that is that the master franchisee will be required to sell franchises to other people who want to become franchisees. It is sort of like being a franchisor in a way.

 

The master franchisee will be required to own and operate at minimum one store themselves and in some cases even more. Once you have opened these locations you will then have to sell locations to other franchisees. This is referred to as subfranchisees and they will operate within your market. There are several different ways that your relationship with the franchisor can work as a master franchisee. Some ways that these relationships can differ include:

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  • The subfranchisee may have their contract with the franchisor or with you as the master franchisee
  • The franchisor may reserve the right to approve or deny new subfranchisees or this may be left to you
  • The subfranchisee may get their training from you or the franchisor or in some cases both
  • The fees paid for the franchise by the subfranchisee can be paid directly to you or to the franchisor or it may even be a combination of both.

 

The thing to remember is that each franchise relationship is different. This is why you should talk with a franchise attorney to make sure you fully understand the franchise arrangement.

 

The relationship between the master franchisee and the subfranchisee is the most complex of them all. This is because it really involves the franchisor, the master franchisee and the subfranchisee. This type of franchise relationship is less popular than it was a few decades ago. However, it is still the most popular method for US franchisors moving into other countries. There are several variations that can arise with this, such as nontraditional locations which includes mass gathering locations like airports, train stations and more.

 

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