A master franchise agreement is a contract between a franchisor and a master franchisee that allows the latter to buy and open franchises in a particular territory. The master franchisee becomes the exclusive provider of the franchisor’s products or services within the region specified in the agreement. If you want to expand your franchise globally, you will need to draft a master franchise agreement. In this article, you learn everything you need to include in the contract.
What is a Master Franchise Agreement?
The terms of the agreement in a master franchise agreement grant the master franchisee the right to start and sell franchises within a designated territory. In return, the master franchisee agrees to promote and support the franchisor’s brand and business model.
The Benefits of an International Master Franchise Agreement
The benefits include:
- Increased brand awareness and reach. A well-run franchise system relies on strong branding. A master franchisee can help to increase brand awareness by opening new locations and promoting the franchisor’s business model in their territory.
- Greater control over franchisees. By working with a smaller number of carefully selected franchisees, a franchisor can exert greater control over how the brand is represented in the marketplace.
- Improved relationships with suppliers. As a franchisor expands its operations into new markets, it can often tap into the master franchisee’s existing relationships with local suppliers. This can lead to cost savings that can be passed on to franchisees.
The key to drafting a master franchise agreement is clearly defining both parties’ roles and responsibilities, as well as the expectations for growth and profitability.
Components Of An International Master Franchise Agreement
The agreement must be carefully drafted to protect both parties’ interests and ensure that it complies with the laws of the jurisdiction in which it will be executed. The following are some of the critical components that should be included in an international master franchise agreement:
- Territory. The agreement should clearly define the region where the master franchisee will have the exclusive right to develop and operate franchises. It is crucial to ensure that no other existing or planned franchises can compete with the master franchise.
- Term. The term of the agreement should be sufficiently long to allow the master franchisee to recoup its investment and make a reasonable return on its investment. However, it should not be so long that it would prevent the franchisor from terminating the agreement if the master franchisee is not performing up to expectations.
- Renewal options. The agreement should give the master franchisee the right to renew the contract for additional terms, subject to specific performance benchmarks. This will provide some security.
Why Use an International Master Franchise Agreement?
When expanding a business into new markets, it is important to have a clear and concise agreement that sets out the rights and obligations of both parties. An International Master Franchise Agreement (IMFA) does just that.
An IMFA defines the relationship between the franchisor and the master franchisee, including the franchise’s territory, the products or services that will be offered, and the terms of the agreement. It is important to have an IMFA in place so that both parties understand their roles and responsibilities and can avoid any misunderstandings down the road.
An IMFA can also help to protect your brand as you expand into new markets. By having a well-defined agreement in place, you can help to ensure that your brand standards are maintained and that your franchisees are operating in a way that is consistent with your brand values.
Suppose you are considering expanding your franchise into new markets. In that case, you want to hire a lawyer for an international master franchise agreement to help you protect your brand and set clear expectations for both parties.
How to Negotiate an International Master Franchise Agreement
When expanding your business internationally, one of the key questions is how to structure your relationship with your franchisees. One option is to grant a master franchise, which gives the franchisee the right to sub-franchise in a certain territory.
If you’re considering this option, it’s important to negotiate a strong master franchise agreement that will protect your interests and give you the flexibility to grow your brand in new markets. Here are some key points to keep in mind when drafting an international master franchise agreement:
- Define the territory clearly. The agreement should specify the geographic area where the franchisee has the exclusive right to operate. This will help avoid disputes about whether a particular market is included in the agreement.
- Set clear sub-franchising requirements. The agreement should specify what requirements franchisees must meet to sub-franchise, such as having a minimum number of operational units and meeting certain performance benchmarks. This will help ensure that only qualified franchisees are granted the right to sub-franchise.
- Set reasonable fees and royalties. The agreement should outline what fees and royalties the franchisee must pay, and these should
When you are ready to draft an international master franchise agreement, there are key points to keep in mind. First, ensure that the agreement is clear and concise and that all parties understand the terms. Second, be sure to include provisions for dispute resolution and governing law.
Finally, have an experienced attorney review the agreement before it is finalized. By following these steps, you can help ensure that your international master franchise agreement is fair and prosperous.