Master Franchise

What is a Master Franchise?
Another aspect of franchising which is sometimes confused with multi-level marketing is what is known as a “Master Franchise”. This is used where the franchisors, for their own reasons, decide to allow another party to take over the control of running a franchise in a particular area or country that can create income for them by setting up other franchisees and obtaining the initial franchise fees as well as receiving ongoing royalties.

An overseas franchise may decide to come into the USA and decide to set up a master franchisee in the North Island and another in the South Island. These franchisees would then develop their own franchisees under them to cover the areas concerned. The master franchisee would have full charge of the area allocated and no one else can come into that area with the franchises products or services.

How to Expand a Master Franchise
If you are a business with a successful product and you wish to develop it under a franchise system then one of the ways that you can do this without a lot of your own capital is to set up a master franchise network.

A local person or group in each country is appointed the sub franchisor for the area or country. The sub franchisor appoints franchisees and carries on the business in that manner. The franchisor still provides support and back up in the normal way except they are not dealing with a number of smaller franchisees but with one master franchise agent or master franchise for that country.

How to Franchise Internationally
Some Franchisors appoint Master Franchisee for overseas countries because of the size of the international market. Some are lured by the potential for overseas travel and the opportunity to see other parts of the world.

The franchisors who are smart would head overseas for one reason only and that is to expand. It is preferable that the franchisor would already have a strong and profitable base in their home market. This of course would depend on the type of product that the franchisor has. It may be a product that needs quick expansion otherwise the intellectual property can be stolen by other countries overseas that see it as a profit opportunity.

There are a lot of issues involved in going overseas and some of these could include such things are providing support services, giving on-site training and the supply of associates and staff with the necessary expertise.

The Master Franchise agreement
The Master Franchise agreement is the key legal document to put together in a franchisor master franchisee arrangement. The major issue is identifying and selecting the right person or company to be the master franchisee overseas.

In order to protect the system and the name or brand, the Master Franchise agreement needs to include provisions for the following things:

  • Governing Law. Most master franchisors would want the governing law to be where the Master Franchisor resides.

  • Intellectual Property. The IP would always be owned by the Master Franchisor and it would have to be specified clearly that it is owned by another.

  • Fee. The cost of the Master Franchisee must be clearly stated and if a deposit is required initially then the method of payment of the balance must be included.

  • Royalty. The amount of royalty and how it is calculated has to be specified.

  • Products or Services. The method of supply of products or services would be an important aspect.

  • Term. The term of the Master Franchise as well as the right of renewal.

  • Other Issues. These would include financial aspects, market research, training, how the brand would be handled etc.