What Is a Company-Owned Unit
A company-owned unit is a franchise location operated directly by the franchisor instead of by a franchisee. The franchisor owns the lease or property, hires the staff, and keeps all revenue after expenses. This structure contrasts with franchised locations, where independent operators pay royalties and follow brand standards while retaining profits.
Disclosure in the FDD
The franchisor must disclose the number and location of company-owned units in Item 19 of the Franchise Disclosure Document (FDD). This section also requires disclosure of franchised units, units under development, and units that closed or were transferred. Reviewing Item 19 carefully tells you how heavily the franchisor relies on company-owned operations versus franchisee networks.
A franchisor with high company-owned penetration (for example, 40% or more of the system) signals different financial incentives than one operating primarily through franchisees. Company-owned units generate gross revenue for the franchisor, while franchised units generate only royalty fees, typically 5% to 7% of franchisee sales.
Implications for Franchisees
Company-owned units directly impact your franchise investment evaluation:
- Territory rights: The franchisor may place company-owned units within your territory, competing directly with your location. Your franchise agreement should specify whether the franchisor can do this and under what conditions.
- Performance data reliability: Company-owned unit financial performance in Item 19 comes from franchisor operations, not independent business owners. Labor costs, rent, and operational decisions differ significantly from franchisee experiences.
- Franchisor obligations: Company-owned units reveal what the franchisor believes the model should achieve. If franchisor-operated units underperform, it suggests systemic issues with the business model itself.
- Renewal and support priorities: Franchisors sometimes deprioritize underperforming franchisee support to focus resources on company-owned locations generating higher margins.
System-Wide Context
Company-owned unit counts matter relative to System-Wide Sales. A 200-unit system with 50 company-owned units represents 25% franchisor-controlled revenue. A 200-unit system with 5 company-owned units is primarily franchisee-driven. This ratio directly affects how the franchisor allocates training, marketing, and innovation resources.
Common Questions
- Can the franchisor convert my location to a company-owned unit? No, not without your agreement, but the franchisor can open new company-owned units in your territory unless your franchise agreement prohibits it. Review territorial exclusivity language carefully.
- Should I avoid franchises with many company-owned units? Not necessarily. High company ownership can indicate the franchisor is invested in the system. However, compare the franchisor's unit economics to franchisee profitability data before signing.
- Where in the FDD do I find company-owned unit information? Item 19 lists all units by type and status. Compare this to Item 20 (financial performance), which often features company-owned unit results prominently.