What Sub-Franchising Really Means

Published on March 12, 2019

Share Tweet Share

One of the most misunderstood franchise terms is sub-franchising, a term that not fully understood. Sub-franchising is frequently confused with other franchise models, including area developers, master franchisors, regional developers, and development agents.

Quite often a prospective franchisee becomes confused and does not fully understand the correct definitions of the various franchise models until after speaking with the franchisor. It’s essential for a prospective franchisee to understand what sub-franchising means. Otherwise, needless time may be spent on a franchise strategy without fully recognizing the implications.

According to the FTC, the definition of a sub-franchisor is a person “who functions as a franchisor, grants a franchise“ and participates in the franchise relationship. In order to be considered a sub-franchisor, a party must have the authority to enter into a franchise agreement, and is obligated to perform after the purchase of the franchise is consummated. For purposes of this definition, a “sub-franchisor“ means a person who functions as a franchisor by engaging in both pre-sale activities and post-sale performance.

The term sub-franchising can be confusing since people may not understand the contractual obligations; their franchise entity has with the duties they perform. Although an area or regional developer may have specific responsibilities from a franchise sales, training and support standpoint most of these entities are not a party to the franchise agreement. Instead the franchisees they recruit, and train is a franchise of the franchisor.

It is rare when someone is granted sub-franchising rights in the United States except when being licensed by a foreign franchise. Sub-franchising usually takes place when a franchisor grants licensing rights to someone in another country and that licensee enters into franchise agreements with franchisees in their own country or territory.


About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 35 years experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million dollar home healthcare franchise. Ed is the author of Franchising From the Inside Out and The Franchise Buyers Manual. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and spoke at a number of venues including the International Franchise Expo and the Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at 631-246-5782 or ed.teixeira@franchisegrade.com.
Istock 840610244

Franchise calculator
Thinking about buying a franchise?
Not sure how much can you afford?

Fill out our Franchise Affordability Calculator


Metal Supermarkets logo

A

Grade
Certified as:
Mtg horizontal




Related Articles