---

Guest post by: Kenneth Franklin Become an Author

Tweet

---

---

individual and area franchises

When you think of franchises, you may, like most people, think of a McDonald’s, Wendy’s, or Arby’s. True, a franchise relationship can be structured simply as a single business outlet, historically the most common form of franchise. However, the individual franchisee may acquire rights to establish additional franchised businesses in the form of options or rights of first refusal. When the franchisee establishes other franchises, he or she moves into the second form of a franchise relationship - - an area franchise. This franchise relationship usually takes one of three formats: the multiple outlet franchise, subfranchising, and three party relationships.

Multiple Outlet franchise

The multiple outlet franchise may evolve from an individual franchise, as discussed above, or may be developed at the beginning of the relationship. In the latter case, the franchisor and franchisee typically enter into an area development agreement that grants the franchisee the right to open franchised businesses in an identified area and prescribes the development responsibilities of the franchisee and a development schedule. Each business outlet is usually governed by a separate franchise agreement. The franchisee must generally own a controlling interest in each franchise, but is frequently permitted to have minority investors (e.g., equity owning managers) in individual franchised outlets.

subfranchising

A second type of area franchise permits the area franchisee to grant subfranchises. The pure subfranchising system involves two distinct contractual relationships: one between the franchisor and the subfranchisor and a second between the subfranchisor and the subfranchisee. There is generally no direct contractual relationship between the franchisor and subfranchisee and/or location of the business. Typically, the subfranchisor will own and operate some franchised outlets. The right to grant subfranchises reduces the capital requirements of the subfranchisor, who can look to subfranchisees for much of the capital required to develop the territory.

three party relationships

The third form of area franchising is a hybrid of the first two forms. This form is a three party relationship and involves a development agreement between the franchisor and the area franchisee, which delegates to the latter the obligation to secure, train, assist and/or supervise franchisees. However, the franchisor grants the franchise directly to and has a direct contractual relationship with the franchisee (the area franchisee may or may not be a party to the agreement). Fees paid by franchisees are shared by the franchisor and the area franchisee. As in the subfranchise relationship, the area franchisee may also own and operate one or more franchised outlets.

Thus, as a prospective franchisor, you have more than one option when you think of developing your franchise.

To choose your franchising option wisely is to choose well!

Related Articles

  The best franchise systems all have effective leadership.
  Franchise Marketing Systems Client Growth
  About 60% of all franchise opportunities have less than 50 units.
  Export your franchise to Australia
  Steps to a Successful Franchise Experience
  WHAT YOU NEED TO KNOW ABOUT BUYING A FRANCHISE
  How to Start A Franchise
  Devin Conner - Franchise Consultant
  Wheelchair Ramps to Help you Succeed
  What Information Franchises Want About Me and Why
  What Information Does the Franchisor Want About Me?
  International Expansion-Best Practices in Franchising
  Making the Transition from Entrepreneur to Managing a Business.
  Beat the Recession with a Retail Franchise
  How to Start a Franchise Company
  Owning a franchise is a great way to become your own boss.
  The Key to Growth in Franchising
  Franchise Consultants - Best Practices
  What is Franchising
  What is a Recession Proof Franchise Opportunity

Related Forum Posts

These maybe the coldest franchises out there:
Information about doing franchise business in China

Share this article. Fund someone's dream.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Avoid These Employment Background Check Mistakes

Getting the Word Out - Using a Media Kit

10 tips for an Eye-Catching Freelance Profile

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.