How do you sell a franchise business?

by | Aug 20, 2019 | Business Sellers & Purchasers, Franchisors

Selling a franchise business is a different process than the sale of an ordinary business.

There is generally an established procedure for the sale of any branch of the franchise.

This process is usually clearly documented within your franchise agreement under an ‘assignment’ or ‘transfer’ clause, as well as in the operations manual.

If you are considering selling your franchise business, you should consider seeking the assistance of a business lawyer who has experience with franchises. It’s also a good idea to discuss the decision with your franchisor and other franchisees, as they may be able to advise you on how to go about it.

“What does the Franchising Code of Conduct say about selling your franchise?”

According to the Code, the franchisor must give an information statement and a disclosure document to the purchaser of your franchise.

“What are the standard obligations set out in a franchise agreement?”

Every franchise agreement is unique. As such, the obligations on the franchisee when selling the business will vary depending on each individual franchise agreement.

The transfer clauses might include, but are not limited to, the following:

* A ‘first right of refusal’ giving the franchisor the right to buy the business back from you before any other potential purchaser;

* The franchisor will more than likely need to give their approval before allowing the franchisee to sell;

* The costs involved in training up the new franchisee are often be worn by the old franchisee;

* An assignment fee (which you will need to pay);

* All accounts must be paid in full before any sale can go ahead;

* A restraint of trade clause preventing the old franchisee from using any of the franchisor’s intellectual property or competing in any way with the franchise business.

“Does the Franchisor have to consent to the sale?”

A franchisor must not unreasonably withhold consent to the transfer of a franchise agreement.

There are circumstances under which a franchisor may reasonably withhold consent including where:

* the proposed buyer is unlikely to be able to meet the financial obligations under the franchise agreement;

* the proposed buyer does not meet a reasonable requirement of the franchise agreement for the transfer of the franchise agreement; or

* the proposed buyer does not meet the selection criteria of the franchisor;

* the franchisee has not remedied a breach of the franchise agreement.

Helen Kay - Managing Director

Helen Kay

If you require any assistance with your business legals or any other commercial legal issue, please do not hesitate to contact me.

Typical Legal Disclaimer!…

Unfortunately, there is never a ‘one size fits all’ formula to apply. Every situation is unique and it can be tricky to wrap your head around some areas of the law. To ensure you are setting yourself and your business up for success, it is always best to consult a legal professional with expertise in the field.

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