Master Franchise vs an Area Development Agreement

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Master Franchise vs an Area Development
Agreement A franchise system sells a
sub-franchise (which is also known as a Master
franchise) with the motive to expand the
business in other locations. In fact, master
franchising is the best way to expand the brand
internationally. To have this, a master franchise
is normally sold to a person or an entity to
further sell the franchises in his own country
on the franchisors behalf. The main
responsibility of a master franchisee is to
recruit, train and support the franchisees
throughout that region. So, this franchise
system is best if business desires to expand
internationally.
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• Understanding a Master Franchis
• Especially in the United States, many businesses
  have used this master franchising system to
  expand their business domestically by dividing
  the country into different regions. There is no
  formal rule for this regional division. For
  example, a business may sell American master
  franchisees and they further need to sell, train
  and support the franchisees in their location,
  but as per the franchise agreement, they would
  typically receive any franchise fees and
  royalties amount.
• The Advantages Disadvantages of this method
• Advantages of this business expansion method are a
  s follows
• Local knowledge,
• Quicker growth and
• Potentially better logistical support for the
  franchisees.
• Disadvantages of this business expansion method
  are as follows
• Potential of weakening brand standards, this is
  because various American master franchisees are
  governing the process instead of the main
  franchisor.
• Division of future cash flow to the franchisor.
• If the system is not tightly monitored and
  managed by the main franchisor, this could also
  lead to fragmenting the brand which can ruin the
  brand image in the market. Many legal and
  administrative costs are involved in being a
  master franchise system. These are Franchise
  Disclosure Document (FDD) for the master
  franchisee and franchisor, which is usually
  drafted by consulting the best Franchise Law
  Firm. This legal document is very crucial, so
  every franchisee and franchisor must consult with
  a franchise lawyer to ensure the legal documents
  are according to both federal and state laws.

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Difference between
a Master Franchise and an Area
Development Agreement The main difference between
a master franchise and an area development
agreement is that a master franchisee who buys a
territory or region has fully authorized to
develop his franchise region directly. But, an
area developer is basically supported and
trained by his associated franchisor and is
permitted to open certain locations within the
territory within a given time frame. Area
Developer is the next best method for rapid
expansion after franchising system. There is no
sure-shot method of expansion it solely depends
on the business goals. Every business expansion
method has its own pros and cons. If you are
considering area development or master
franchising as an expansion method, dont forget
to consult your franchise lawyer as he is the
best source to guide you in this matter. For
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