A management contract also helps the company to better distribute its responsibilities. When you relocate your accounting function, you will never have to deal with the fact that different departments have to process their own accounts in addition to their primary functions. This means, for example, that the human resources department does not need to keep its own books. Suppose you own a fast food chain. If you were looking for a management contract, you would encourage a company to take full operational control of one of your fast food outlets. The company would then operate the point of sale in accordance with the terms of the contract. In return, you would pay the management company a fee based on the agreed royalty calculation method. On the other hand, if you are looking for a franchise agreement, you would get another company to buy the rights, to use your company name and your brands to open a fast food outlet. In exchange, the company would pay you for these rights. These management contracts are used not only by large companies, but also by individuals who want nothing more than someone who looks after their real estate.
Often, these management contracts are beneficial to all parties involved. The Business Dictionary helps define a management contract. According to the Business Dictionary, a management contract is “an agreement between investors or owners of a project and a management company that has been hired to coordinate and track a contract.” Under a management contract, the management company obtains the full framework in which it will work under the agreement. As part of a franchising agreement, the franchisee acts as a stand-alone company. The franchising agreement establishes a relationship between the franchisor and the franchisee. The franchisor owns the business, while the franchisee buys the right to use things like the company name and its trademarks. With regard to management contracts, it is not always a question of giving a management company control of a given function at once; Nor do these contracts always involve two companies. Sometimes there is another type of agreement, known as the association manager, involving professional associations, non-profit organizations and similar organizations. The contract should have a section that describes everything related to the compensation of the management company. The method of calculation could be anything from a fixed commission to a performance-related commission to a percentage of profits. There are also management contracts that apply to the entertainment and sports industry. Athletes and artists often have to hire a management company to handle things like notes, book sponsorships, public relations, personal finance and other aspects of their lives.