The franchise relation involves the sharing of intangible assets between the franchisor and the franchisee, i.e., the brand name of the franchisor and the local know-how of the franchisee. These assets represent proprietary knowledge that cannot be easily transferred because investments in such assets are costly if not impossible to observe and monitor <…>. The franchisor faces the problem of maximizing the returns to his intangible assets when they are dependent on local intangible investments of the franchisee. Therefore, substantial residual risk for local outlets is borne by the franchisee who has the residual rights of control of the local promotion and services. Since these investments cannot be specified in the contract, asset ownership is critical to the market success of the product or service. The present article focuses on a property rights explanation of the ownership structure in franchising networks by emphasising the role of intangible assets as determinant of ownership structure. By applying the incomplete contracting theory of the firm <…> we argue that ownership should be given to the franchisee when he has to make intangible investments that generate a large fraction of residual income. Ownership increases the bargaining power concerning the division of residual income and therefore gives incentives to make intangible ex ante investments. The appropriate incentive structure is provided, not only by a mix of franchisee fee and royalties but also by additional incentive devices, such as resale price maintenance, exclusive dealing, exclusive territory and tying arrangements, lease control and buy back and alienation rights. <…>