WHAT IS A MASTER FRANCHISE?
A Master Franchise arrangement is the grant of rights to be the Franchisor of the system in a specific market or area. It is typically used when the head Franchisor needs a well resourced local group to operate the franchise. It is most commonly used when international franchisors are expanding into multiple countries and they seek a local partner to run the franchise for them. Some Australian based franchisors also use Master arrangements to expand into more distant areas where they cannot stretch their resources to provide support or frequent contact. For example many east coast franchisors deploy Master arrangements for WA or SA.
Legally the contractual relationship is the Master is a Franchisor of the head Franchisor. In turn the Master sells franchises within their trade area to Sub-Franchisees and therefore becomes the local franchisor to those Sub-franchisees. The sub-franchisee pays royalties and other fees to their Master, who in turn shares a portion with the head Franchisor.
All 3 parties (Franchisor, Master and Sub-franchisee) are governed by the Franchising Code of Conduct in Australia.
Go to the ACCC website for key Franchise material:
HOW IS A MASTER FRANCHISE DIFFERENT TO AN AREA DEVELOPMENT AGREEMENT?
An Area Development Agreement is an agency arrangement where the developer is granted the rights to do certain things on behalf of the Franchisor, such as recruit, train and support Franchisees. The arrangements can be structured in many ways but in essence they pay a smaller “buy in” fee and receive smaller commission or royalty shares. They can include profit shares or agreed share of sale proceeds.
For Franchisee recruitment, the legal relationship and contract is directly between Franchisor and Franchisee (not via the middle man like a Master Franchise arrangement)
If structured properly these arrangements are usually not captured by the Franchising Code.