Franchise resales: what you need to know
16 May 2023
Franchising has become a popular business model in the UK, with more and more entrepreneurs choosing to buy into established franchises rather than starting their own businesses. Franchising offers many benefits, including established brand recognition and proven business systems and for budding franchisees acquiring an existing franchise can be a good opportunity to acquire a business that is already operating (hopefully profitably). You will also benefit from an existing customer base, employees and the supplier network that the franchisor has in place.
Here are some things you need to know about franchise resales:
Types of sale
There are two types of franchise resale.
Asset sale
In this type of sale, the seller, the buyer and the franchisor agree on what assets and liabilities change hands. This offers a more bespoke approach, as the buyer can choose what parts of the business they want.
Share sale
In this type of sale, the business’ shares change hands. This means that all aspects of the company transfer (not just its physical assets but its debts and possible liabilities as well). This is usually the simpler of the two types of sale, as the buyer takes on the business in its entirety.
Both types of sale have their advantages and disadvantages and the process of buying them differs and it is important to get advice on the impact of the sale type on tax liabilities, employee matters and property matters at an early stage.
Documents to be signed
The two main documents that you will need to sign are the franchise agreement and the sale and purchase agreement.
The franchise agreement is the document, which sets out the relationship between the franchisor and franchisee. Generally, the franchisor will not negotiate on the terms of the franchise agreement so it is important that any prospective franchisee gets legal advice on the contents of the franchise agreement before signing it.
The sale and purchase agreement is the main agreement that sets out the terms of the asset or share sale. It is important that both buyers and sellers take legal advice on the terms of the agreement, to reduce the likelihood of any expensive disputes about the business or the sale after completion.
Generally, the sale and purchase agreement will be signed by the buyer, seller and franchisor and so all three parties will be involved in the negotiation of the document meaning the process can be more complex and take longer than more straightforward sale agreements.
Plan ahead
Because franchise resales can be more complicated than the sale of an independent business, it is important if you are thinking about buying or selling to plan ahead and start the process early. This should include consulting with a solicitor and an accountant, both of whom should be familiar with franchise agreements and sales.
In conclusion, franchise resales can be a complex process requiring careful planning but by understanding the key considerations involved, franchisees can better prepare themselves for buying or selling a franchise and ensuring the transaction is a success.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2023.