A master franchise agreement is used by a franchisor to grant another party the right to sub-franchise to an additional level of franchisees. This means that the master franchisee takes on the role of the franchisor with its own sub-franchisees, giving them the support that the franchisor would normally provide.
By setting up an intermediate level of owner-managers, a franchisor can more rapidly expand its operations over a broad geographical region. Master franchising is especially useful when a franchisor wants to expand internationally, since master franchisees are expected to be knowledgeable in the cultural and political issues for their assigned regions.
This approach puts the burden of fundraising to support increased growth on the franchisees, so the franchisor does not need a large capital base in order to expand. However, there is an increased risk of franchise failure, since the franchisor does not have direct control over the activities of sub-franchisees; instead, it must work through the master franchisee to enact changes.