tially, the master franchisee is granted
the restricted right to act as the franchi-
sor within its territory. The unit franchi-
sees in the territory usually sign their
franchise agreements with, and pay their
fees to, the master franchisee instead of
the franchisor. The master franchisee
typically pays the franchisor a percent-
age of the fees it receives.
A Master Franchise program allows
the franchisor to pass on the responsibil-
ity for building and overseeing the fran-
chise system in the master franchisee's
territory. There is less direct responsibil-
ity on the franchisor to deal with the other
country's unique business and cultural
issues or to deal directly with the local
unit franchisees. The master franchisee
can also help with compliance with local
laws. As such, the Master Franchise ar-
rangement is recognized as having unique
advantages in international expansions.
The disadvantage is that the franchisor
gives up some control. And, it is impera-
tive that a trustworthy and capable master
franchisee be found, or there can be seri-
ous damage to the franchisor, its brand,
and the franchise system.
there are a number of legal issues, some
specific to franchising and some gener-
ally applicable to all types of businesses,
that are involved in expanding inter-
nationally. In some cases, the master
franchisee may have the responsibility
for these obligations, or it may be pos-
sible for a master or unit franchisee to
contractually assume some of them.
disclosure to prospects of specified infor-
mation regarding the proposed franchise.
These disclosure obligations differ from
country to country and even within a
tive challenges to a franchisor offering
franchises in multiple jurisdictions.
While a single "disclosure document"
for multiple jurisdictions is tempting and
sometimes used, the requirements in cer-
tain countries often require the franchisor
prepare separate disclosure documents.
Some countries
tem, or the disclosure document, prior to
or within a specified time after engaging
in franchising activities in that country.
The burden, cost, and time involved in
the registration process varies widely
by country. The disclosure document
and franchise agreement may need to
be translated. Further, some countries
require renewal filings on a regular basis
or upon material changes in the franchise
system or the franchisor.
Many countries also have franchise
relationship laws that impose require-
ments on the ongoing franchise relation-
ship between the parties. Some common
examples are laws that (i) require the
parties to act in good faith, (ii) restrict
the rights of the franchisor to terminate
the franchise agreement except in certain
situations, and (iii) provide territorial
protection to the franchisee.
that affect international expansion
generally. Laws regarding intellectual
property are among the most important to
consider. Prior to expanding into another
country whether directly with company-
owned stores or through a franchise
program, a business should determine
and take the action necessary to protect
its brand. In the franchise context, since
the primary intellectual property involved
is usually the franchisor's trademark, this
means registering or at least applying to
register the trademark in a country before
selling a franchise in that country. In-
ternational trademark laws differ greatly
between countries in regard to the protec-
tion afforded registered and unregistered
marks, the registration process, and
other matters.
in an international expansion include
(i) exchange control laws regulating the
transfer of money into and out of a coun-
try; (ii) import and export restrictions; (iii)
both the U.S. and other country's anti-
terrorism laws; (iv) anti-corruption laws,
including the U.S. Foreign Corrupt Prac-
tices Act; (v) antitrust laws, which may
impact certain "restraints" on trade; (vi)
general business and contract laws; and
(vii) industry specific laws, which may
affect the type of business franchised.
A thorough survey of all laws that af-
fect international expansion is beyond the
scope of this article. In an international
expansion, each country's laws should be
considered individually, and the method
of expanding there decided accordingly.
It is advisable and often necessary to
consult with local legal counsel.
volved in international franchising, they
are often outweighed by the unique ben-
efits, especially when you consider the
business, legal, and cultural challenges,
and expenses, involved in the alterna-
tive option of opening company-owned
businesses in foreign countries. In our
experience, the franchise business model
can be a cost-effective and efficient way
for existing U.S. businesses to expand
into international markets.
Malaysia, Mexico, Romania, Spain, Sweden, Taiwan,
and Vietnam.
certain countries have registration requirements for
trademark licenses, which also apply to franchises.