A master company franchise agreement correctly defines and protects all elements of the franchisor's proprietary rights and the franchisee's use of those privileges. Read on to learn more about this agreement in this article.
When you acquire a franchise, you’re investing in a tried-and-true system, so you should have to draft a franchise agreement. The franchisor has already handled the challenges that arise with a new business and is giving you a solid base for you to build on.
However, you must consider the benefits and drawbacks of the franchise model. If you have the necessary cash and meet the franchisor’s requirements, you may begin by obtaining their franchise license. Obtaining a franchise business license is simple, but you must be cautious when doing so, and you will require a franchise agreement.
What is a Franchise Agreement?
A franchise arrangement is a contract between a franchisor and a franchisee that is legally enforceable. The franchisee is granted a license and the authority to use the franchisor’s copyrights, business processes, operator guidelines, and supply network under this arrangement.
This partnership business agreement is detailed in the Franchisee Prospectus, which should be provided to franchisees at least 2 weeks before the sale of the franchise license.
Types of Franchise Agreements
Franchise agreements may be divided into three categories –
Single-unit Franchise Agreement
The franchisees are given the license to manage one franchise business unit under this arrangement. First-time licensees most commonly use this contract.
Multi-unit Franchise Agreement
This agreement allows a franchisor to hold and run many franchise units. This arrangement is not confined to a single region, and the venues might be dispersed around a major metropolitan area.
Master Company Franchise Agreement
This enables the franchisee owner and company to resell licenses to other licensees in the geographical location. In essence, the franchisee operator can himself become a franchisor. For Example- KFC Franchise and Bata Franchise.
What is a Master Franchise Agreement?
A master Company Franchise Agreement is a contract that grants a head franchisee global, regional rights to issue franchises to single-unit franchisees in a defined geographic location. As a result, when franchisees grow globally or beyond state lines, this arrangement is frequent.
A franchisor will designate a ‘master franchisee’ to function as the ‘franchise owner’ in a certain nation or region. This implies that under that nation’s standards, the franchise owner will get all of the duties of a franchisor.
A master franchise agreement will also include sections referring to the contract rules of the main franchisee’s interests, such as:
- Assessment criteria
- A developmental timetable that specifies the number of licenses to be awarded, as well as the total number of licenses to be issued
- Spells out each group’s interests and duties.
How Do You Draft a Master Company Franchise Agreement?
The Master Franchise Agreement‘s Standard Clauses are:
Preamble
This gives information on critical topics so that it clarifies the contract’s major elements and reflects the participants’ intent when they enter the contract. As a result, the preamble can provide perspective for the whole contract. It is to be read and used as a reference guide in the event of a disagreement.
Granting of rights
The contract’s most common goal will be to expand the franchise model in a certain region. This will be made possible by the licensee granting the master franchisee permission to use the franchise model, a brand license, and a commercialisation license.
Geographical location
The geographical region given to the master franchisee must be clearly defined. The partners can choose to expand or reduce the area based on the achievement of explicitly defined criteria, such as revenue or the total number of franchise divisions opened, or a combination of both.
Exclusivity in Return of Investment
The master franchisee will want to be awarded ownership of the defined region for promoting the franchise company.
Development Schedule
A development schedule would be included in master franchising contracts, detailing the progression of the total number of current franchise division units to be developed in the allocated region. Both sides should address this issue realistically to reduce disagreements to a minimum.
Marketing
Marketing is essential when it comes to assuring the sustainability of a franchise system. The master franchise contract usually includes provisions about arranging promotion according to certain criteria on specific duties, management, and marketing finance.
Master Company Franchise Agreement: Benefits and Drawbacks
Benefits for the Franchisor
Master franchising has several benefits for the franchisor:
- Increased revenue: The franchisor receives a positive cash flow increase from the placement of the master franchise system as well as continuing fees
- Easy to expand: This helps the company easily grow into other countries. Master franchisees are frequently required to construct multiple locations within a particular length of time under the terms of their contracts
- Franchisors save time and money by just not having to devote substantial funds to market innovation and production in a new province or jurisdiction
- Company’s overall brand development and growth: Expanding your business internationally may help you build your consumer base and boost the company’s brand.
Benefits for the Master Franchisee Agreement
- Solid business template: The business already has a successful track record and a strategic plan to expand the franchise network while retaining brand value
- Exclusive territory: Franchisees may not have to face competition, which offers up infinite expansion opportunities, as well as backup assistance from the franchisor and direct communication with the franchisor.
Master Franchise Agreement: Drawbacks
Drawbacks for the Franchisor
- Loss of future revenue: The franchisor must provide the master franchisees with a considerable portion of the initial launch and operation fees
- The original master franchise fee, on the other hand, helps offset the losses
- The franchisor has very little influence over the business since the master franchisee controls the rest of the authority in their region. But a proper master franchise agreement will prevent them from going rogue
- Loss of the business brand: Issues beyond your control might have a ripple effect throughout the global network.
Drawbacks for the Master Franchisee
Franchisees’ Chances of Failure in a New Market: New enterprises are rife with dangers. Before getting into any arrangement, invest sufficient time and effort to understand the risks involved.
Conclusion
The Master company Franchise Agreement should focus on and satisfy the franchise operators’ unique conditions and expectations, and maintain a pleasant and productive relationship with the franchisee. A professionally drafted agreement is a significant aspect in promoting and enhancing a win-win scenario while safeguarding the participants’ legitimate interests and the franchise business. reach out to Vakilsearch if you have any queries. Because licensing agreements are so complicated, hiring a lawyer who specialises in IP rights and licensing fee is a great investment that could save the franchisor money, effort, and frustration.
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