Master Franchising Attorneys
What is “Master Franchising?”
A master franchise relationship involves two franchise agreements. The first franchise agreement (the “master franchise agreement”) is between the franchisor (the “master franchisor”) and a franchisee (the “master franchisee”). The second franchise agreement (the “subfranchise agreement”) is between the master franchisee and the unit franchisee (the “subfranchisee”).
In a master franchise relationship, the master franchisor grants the master franchisee the right to grant subfranchises to subfranchisees. The master franchisee solicits and qualifies subfranchisees, enters into subfranchise agreements with the subfranchisees, and services the subfranchisees after the master franchisee and the subfranchisee sign the subfranchise agreement.
What are the Advantages and Disadvantages of Master Franchising?
Master franchising offers several advantages to the master franchisor. In effect, the master franchisee steps into the shoes of the master franchisor, leaving the master franchisor relatively free to allocate its resources to other objectives. The master franchisor collects an initial master franchise fee from the master franchisee; these fees are substantial, often several hundred thousand dollars.
In addition, if the master franchisee has significantly greater knowledge of the local market than the master franchisor (for example, in international franchising), this “on the ground” expertise may be the key factor in deciding whether to offer master franchises.
Master franchising does, however, have disadvantages. The master franchisor and the master franchisee generally share initial franchisee fees and royalties, as well as some of the other fees subfranchisees may pay (e.g., transfer fees or renewal fees). As a result, the income from each subfranchised business is split two ways, rather than being retained in its entirety by the franchisor. In addition, because the master franchisee is supervising the compliance of subfranchised businesses with their subfranchise agreements, the master franchisor risks losing some measure of control over the operation of a part of the franchise system.
How We Help.
If you are a reasonably well-established franchisor seeking to expand your business over a broad or unfamiliar area, and in particular if you are expanding internationally, master franchising may allow you to minimize your costs and maximize your growth.
At The Johnson Franchise Law Firm, we understand the complexities of master franchising, and the decisions that go into deciding whether to offer master franchises. If you are considering taking your business to the next level through master franchising, contact the Johnson Franchise Law Firm today.