What is a sub-franchise?
Sub-Franchise · subfranquicia · الامتياز من الباطن · 分特许经营
A sub-franchise is a franchise granted not by the original brand owner but by its master franchisee in a territory. The sub-franchisee operates units under the same brand while contracting with — and paying fees to — the master, who shares them with the franchisor.
Sub-franchising lets a brand scale in a foreign market through local relationships. Buyers evaluating a sub-franchise should assess both the global brand and the local master's capabilities, because day-to-day training and support come from the master.
In practice
Buying a sub-franchise means your contract, support and fee payments run through the master franchisee, while brand standards still come from the original franchisor. Field visits, training and supplier approvals are usually handled by the master's team, and escalations to the brand typically go through the master as well. Under the US FTC Franchise Rule, a subfranchisor must disclose the required information about the franchisor and, where applicable, the same information about itself. A common misunderstanding is assuming the global brand guarantees the master's performance.
Not to be confused with
A sub-franchise is granted by a master franchisee; a direct unit franchise is granted by the brand owner itself. A sub-franchisee also differs from the master, which holds the territory rights and grants sub-franchises, and from an area developer, which owns and operates its units rather than selling them to independent owners.
What to check before you sign
- Does your sub-franchise agreement survive if the master's agreement with the brand ends, and who would support you afterwards?
- Can you speak with other sub-franchisees of the same master, and how long has the master been supporting units in this market?
- How much of your royalty stays with the master and how much goes to the brand, and does that split affect support?
Questions to raise with the franchisor and your own adviser — general information, not legal advice. Rules differ by country.
📌 Also sourced from
- 16 CFR 436.6 — Instructions for preparing disclosure documents (Legal Information Institute) ↗ — inPractice: 'Subfranchisors shall disclose the required information about the franchisor, and, to the extent applicable, the same information concerning the subfranchisor'
Related terms
See it in practice
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