Skip to Content

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 40 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 and Richard Chan are the authors of a new textbook, Franchising Strategies: The Entrepreneurs Guide to Success, to be published on July 1st by Routledge on July 1st. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and has spoken at a number of venues including the International Franchise Expo and 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 [email protected].

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

Fill out our Franchise Affordability Calculator

Related Articles

Open Your Own Independent Business or Buy a Franchise?

From the outset, you’ll have some obvious questions you’ll need to ask yourself before you can start formulating your own strategy to begin your venture.

Read More

New York Times Investigates Subway’s Abuse of Franchisees

New York Times investigation into the use of questionable practices by one its Franchise Development Agents that culminated in the agent acquiring two of a franchisees Subway stores.

Read More

The Fall of A Giant – Are Subway’s Healthiest Days Behind Them?

Not even a decade ago, Subway was the champion of healthy eating. In fact, they were the largest fast food chain in the world.

Read More

Maximize Market Penetration and Branding with Multi-Unit Franchisees

Multi-unit franchising grows in popularity, in the Quick Serve Restaurant sector, this model continues to expand into other franchise sectors in popularity.

Read More

The Top 10 Franchise Grade Facts & Figures From 2017

Detailed studies on emerging franchise success rates, errors in Item 20 disclosure and sector performance, Franchise Grade’s reports help you.

Read More

A Road Block to Franchise Growth is Right Under Your Nose

New franchise growth is the top priority for emerging franchise brands. Many of these franchises have an obstacle on the road to more franchise locations.

Read More