What’s a master franchise?

A master franchise is usually given for a larger area, whole region or country. A master franchisee will have the right to open its own outlets and sub-franchise to individual franchisees. 

The emphasis will be on sub-franchising and the master franchisee will be expected to establish its own outlets to pilot test in the target territory, so as to have examples to demonstrate successful operations to prospective sub-franchisees. The master franchisee, in essence, stands in the shoes of the franchisor in the territory and is, to all intents and purposes, the franchisor of the system in the territory.

The master franchisee will be responsible for the selection and training of sub-franchisees, site selection and all the other services a franchisor normally provided to franchisees.

They will be required to provide the financial resources to establish and exploit the system in the target country or region. The sub-franchisees will provide the financial resources for the outlets they operate.

The master franchisee will charge franchise fees to sub-franchisees. The fee income generated by sub-franchisees is divided between franchisor and master franchisee. From these fees, the master franchisee will not only have to finance their own operations, but to make a payment to the franchisor as well.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.