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Is becoming a subfranchisor the right move for you?

On Behalf of | Oct 2, 2023 | Franchise Law |

Most everyone is familiar with the terms “franchisor” and “franchisee.” In some cases, however, franchisors will introduce a third tier by subfranchising their business in some territories. They do this by bringing in subfranchisors. They’re also sometimes known as “master franchisees.”

When a franchisor brings on a subfranchisor, they typically give them authority and responsibilities they would otherwise keep for themselves. A subfranchisor may be able to sell franchises within the territory (using their own agreements) and collect fees and royalties from their franchises. They often have the responsibility of training and providing support and marketing assistance to their franchise locations.

Becoming a subfranchisor can be a profitable move. However, it typically involves a large initial investment. A subfranchisor will need to buy the rights to the franchise units for which they’ll have responsibility.

What kind of terms are outlined in the subfranchising agreement?

As a subfranchisor, it’s also crucial to pay attention to the provisions in the subfranchising agreement you sign. These will determine, among other things, how much money you can make – and keep. A typical agreement will address details like:

  • How many franchise units you have to build or open and keep in business
  • What percentage of royalties and fees you keep and what percentage go to the franchisor
  • Any fines for not meeting the requirements of the agreement
  • The franchisor’s right to amend the agreement
  • Your responsibilities as a subfranchisor

You’ll also need to draw up your own franchise agreement with your franchisees. Of course, you’ll want to get your subfranchising agreement in place first.

Becoming a subfranchisor can potentially be a lucrative move. It can also give you considerable influence over how the franchises are run in your area. However, there’s a lot to consider. Once you decide that’s what you want to do, it’s crucial to review, understand and negotiate your subfranchising agreement carefully.

Having experienced legal guidance as you do so can make all the difference. To learn more, contact Zarco Einhorn Salkowski, P.A. to schedule a free consultation.