franchise quiz
TYPES OF FRANCHISE ARRANGEMENTS
Because so many franchisors, industries and range of investments are possible, there are different types of franchise arrangements available to a business owner.
SINGLE-UNIT (DIRECT-UNIT) FRANCHISE
A single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate ONE franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper. This is then considered a multiple, single-unit relationship.
MULTI-UNIT FRANCHISE
A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit.
AREA DEVELOPMENT FRANCHISE
Under an area development franchise, afranchisee has the right to open more than one unit during a specific time, within a specified area. For example, a franchisee may agree to open 5 units over a five year period in a specifiedterritory. The franchisorgrants the franchisee exclusive rights for the development of that territory.
MASTER FRANCHISE
A master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties.
area representative franchise
Another hybrid-type of multi-unit franchise is an area representative franchise. In this model, the area representative buys a territorial franchise to sell and service unit franchisees in the territory. The area representative does not contract with the unit franchisees (who sign agreements directly with the franchisor), but does receive a portion of the initial fees and ongoing fees paid by the unit franchisee to the franchisor.
