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What is a master franchise?
A master franchise is an agreement entered into by a franchisor who wants to expand overseas, but wants to involve a business in the target country, in effect, to be the franchisor. It is one of the standard ways in which a franchisor expands overseas. Very often franchisors do not have the resources or market knowledge to expand themselves and therefore they look for a business that, with suitable training, back-up, marketing and so on, can act as the franchisor in a foreign country. Ideally that business will have experience of franchising.Although it tends to be more detailed, a master franchise agreement is similar to a franchise agreement, but unlike franchise agreements is a negotiated agreement. Master franchisees are often in a strong position to negotiate with a franchisor and so the ‘take it or leave it’ approach adopted by franchisors in granting franchise agreements is not appropriate. In return, franchisors receive a substantial initial fee and a percentage of the fees received by the master franchisee from the franchise agreements that it grants.Master franchisees are almost certainly granted exclusivity but, in return, have to comply with development schedules that set out their obligations to obtain specified numbers of franchisees.Occasionally UK franchisors split the UK up into territories and grant master franchises, but this hardly ever works in a small country like the UK.
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