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Within franchising, there are three different expansion formats used by franchisors. A Multi-unit franchisee is one who has multiple single-unit franchise agreements. He may also hold an area development agreement or master franchisee agreement.

An Area Development Agreement is a contract, apart from but also a part of the franchise disclosure document and franchise agreement. It obligates a specific franchisee to open a specific number of locations within a detailed time period.  Most Area Development Agreements provided exclusivity for a franchised area, provided however, that the franchisee meets the development schedule.  Area developers for the most part open all the locations for themselves under single one-unit franchise agreements.

A Master Franchisee Agreement is a contract, apart from but also a part of the franchise disclosure document and franchise agreement.  It gives the master franchisee the ability to sub-franchise and also, grant franchises to other franchisees within their franchised area.  The master franchisee will provide training and support to the franchisees he has recruited within his assigned franchise territory.  The master franchisee receives a portion of the initial franchise fee and a part of the royalties as an ongoing compensation.

Area development or master franchisee agreements will usually require a higher initial investment.  If you fail to meet the deadlines in the area development or master franchisee agreement, the franchisor may terminate the special agreement, but most will allow continued operation of the stores that have been opened, but you very well may lose exclusivity for the development area, and perhaps any up-front fees paid to the franchisor.

Using master franchisors might be the most cost effective way to establish your market as a new franchisor, especially if you in a service related business.

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