Sub-franchising represents a form of managing franchising business, at which specific rights at times even exclusive rights are transmitted to the main franchisee, consisting also the opportunity to sell franchise in the specific territory to the third person who is called a sub-franchisee.
In the contract a point can be provided when a sub-franchisee is entitled to control a few trade units. In this case the contract is named multielement franchise.
Sub-franchising is characterized as a rather aggressive method of developing a franchising system. It’s connected with the transaction of significant part of obligations and rights to a sub-franchisee from a franchisor. He is not only authorized to control franchises and to develop them on a stated territory but also executes a part of obligations of a franchisor concerning to the service and consulting.
Sub-franchising relations assume that all present payments including royalty must be allocated between the sub-franchisor and the franchisor. And this division takes place due to the contribution they make to develop franchise.
In connection with such conditions of co-operation, in the case of stopping the relationship some points of contract may be a subject to franchise weather to give it to a sub-franchisor or a franchisor.
One of the franchising types is master-franchising which is distinguished by the exclusive power of using all rights on his system concerning intellectual property.
A master-franchisor may open his shops as well as can transmit all rigths to the third person granting with all of present spectrum of services which are characteristic for franchisor. Exclusive rights of master-franchisees make them care for a great responsibility which is stated in the assigned contract.
As a rule, the described kind of sub-franchising is used in an international sphere and quite often master-franchises can be sold entirely to a country or a series of countries.
Sub-franchising is an effective method to expand the business which allows the major franchisors to develop their network globally. But this is rather risky therefore the confidence towards the sub-franchisee must be on the highest level.