Understanding the Three Types of Franchise Agreements 

Posted by FranSave on July 28, 2023

For those looking to enter the world of franchising, you need to consider a few important items before making that pivotal investment. Among these is what’s known as the franchise agreement. This contract will allow you to use the franchisor’s intellectual property. That said, no linear contractual agreement unites all franchises together. There are considerable differences that exist between each one, and today we’ll be providing a detailed explanation of the major three. 

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Master Franchise Agreement 

This franchise agreement is the most common between the intellectual property owner and a potential franchisee. The master franchise agreement is commonly built on three distinctive cornerstones. 

  1. The franchisor will provide services, training, and support to the franchisees and staff of new locations and those already operational.  
  2. The new franchisee's territory is expected to develop and grow based on a precise schedule. 
  3. The franchisee will operate the new location to the very best of their ability in their territory.

Area Director Agreement 

While not as common as the master franchise agreement, the area director agreement is very similar, except it carries with it fewer responsibilities and awards. This agreement designates the franchisee as a representative of the franchisor in a particular area. While they might not operate the physical locations themselves, they operate on the franchisor's behalf as either an assistant to the different location or as a marketing executive. Payment for these individuals usually comes in the form of a percentage of fees paid by other franchise locations. 

Area Development Agreement 

An area development agreement carries with it the most responsibility for those who enter the franchising world. Instead of being responsible for one physical location, an area developer is entrusted with the task of opening up multiple locations in a designated area. Area Developers usually have higher franchise fees to pay. Still, they’re also granted exclusive rights to open several locations in a particular area, as they have complete control over a specific location. The agreement is built upon a timetable and a number of locations and may contain a higher risk factor than the other two agreements we previously mentioned. The franchisee with an area development agreement that includes several locations may also find economies of scale and produce far more profits.

Your Opportunity Awaits…

No matter what role you’re looking to take on in the franchising world or what agreement you plan on taking part in, it all comes down to one thing–opportunity. The perfect opportunity for success is waiting for you, and at FranSave, we can help you grasp ahold of it and reap the rewards. For more information, visit us online at fransave.com.

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This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. If you are a resident of one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your jurisdiction. Franchise offerings are made by Franchise Disclosure Document only.

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