Legally, franchise arrangements are binding agreements between franchisors and franchisees.
To determine the structure of their business relationships, franchisors have several options. Arrangements are typically defined by the number of units offered to a franchisee and the territory development rights included in the contract. Below are four types of agreements franchised businesses commonly form.
Single-Unit Franchise Agreement
In a single-unit agreement, the arrangement grants the franchisee the right to open and operate a single franchise unit.
This type of agreement is the simplest and most frequently used. New franchisors are particularly keen on these franchise arrangements, as they’re an easy way to take the first step into the world of franchising. As time goes on, if a franchisee is prospering, the franchisor can consider the possibility of expanding the contract to include additional units.
Multi-Unit Franchise Agreement
A multi-unit agreement is an arrangement that grants the franchisee the right to open and operate more than one franchise unit.
A multi-unit arrangement is not bound to a specific territory. Franchisees may have units in different areas of town. In some cases, these franchise arrangements come with deadlines, in which the franchisee must adhere to a schedule for developing a predetermined number of units. If the franchisee fails to meet the agreed-upon schedule, the franchisor may have the right to contract with other interested parties.
Area Development Franchise Agreement
An area development agreement is similar to a multi-unit agreement, as the franchisee is granted the right to open and operate multiple units during a specified time frame.
However, with these franchise arrangements, the franchisor also grants the franchisee exclusive rights for development in a particular territory. No other franchisees will be allowed to open units in that geographic area during the contract term.
Master Franchise Agreement
Master franchise arrangements give franchisees even more rights than area development agreements.
Along with the right and obligation to open a certain number of units within a specific territory, a master franchisee also has the right to sell franchises within their geographic location to other people. Basically, master franchisees are like franchisors who operate only in a particular area. They take on many of the franchisor responsibilities, including training and support, and they reap the benefits of franchisee fees and royalties.
The franchising industry can be difficult for new franchisors to navigate. For answers to all your questions, along with personalized, expert advice, turn to the legal team at the Franchise & Business Law Group.
With the help of our experienced attorneys, making your franchising agreement decisions will be much easier. To schedule a professional consultation to discuss franchise arrangements, contact our Salt Lake City, Utah, office today.