When faced with the prospect of expanding a franchise into a new
territory, many franchisors employ the model of master franchising.
As opposed to direct franchising (where one franchisee is granted
the right to open one business) or area development (where one
franchisee is granted the right to open several businesses across a
particular region), master franchising contemplates something
A master franchisee is a bit of a hybrid franchise entity,
because it acts as a franchisee in its operation of one or several
businesses, but is also granted the right to be a franchisor and
sub-franchise to franchisees across a specified region,
such as a province, state or country.
However, the road to successful master franchising is fraught
with potential pitfalls along the way of which both franchisors and
prospective master franchisees should be aware. The first problem
encountered by franchisors is picking the wrong master franchisee.
For an emerging franchise system, it can be very flattering to be
contacted by an entrepreneur who adores your brand so much that
he/she wants to develop it across Canada, the United States, Europe
or (quite commonly these days) the Middle East.
But successful master franchising isn't just based on
enthusiasm, and too many franchisors make the mistake of acting on
that flattery and permitting a master franchisee to develop a
territory which the franchisor otherwise had no interest in
entering. And if the franchisor had no interest in that
territory, that franchisor may be less likely to actively supervise
the operations of that particular franchisee. Far too often does a
franchisor travel overseas to visit its master franchisee only to
learn, upon a rare physical inspection, that brand standards and
policies have not been followed at all.
Likewise, master franchisees may find themselves unsuited for
the role they have assumed, despite all the enthusiasm in the world
for the brand, if they are not sufficiently capitalized. Sometimes
this is a result of simply not having enough cash on hand, but
other times it is due to a franchisor having underestimated the
costs necessary to start up in a foreign market, as well as basing
its cost estimates on its own productivity and efficiency. This may
not translate well to the new territory and is, of course,
detrimental to the brand's value.
Master franchising continues to be a successful model for global
expansion but those ambassadors of the brand should be selected not
simply for their eagerness or net worth alone. Alignment with the
interests and philosophies of the franchisor is vital to a
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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