Company & Commercial
Re-selling a franchise: things to know
Franchising is becoming ever more popular as a business model in the UK.
Many entrepreneurs prefer the security of buying into an established franchise over starting their own business. There are other benefits other than security, purchasing a franchise means that you have established brand recognition and proven business systems and can allow the franchisee to purchase a business that is already operating profitably. There is also the benefit of acquiring an existing customer base, employees and suppliers.
Type of sale
In an asset sale the seller, the buyer and the franchisor will agree on what assets and liabilities are going to transfer. This allows the buyer to choose what parts of the business they want.
In a share sale, the shares in the company are transferred. On a share sale, all aspects of the business will transfer.
Documents to be signed
The two main transaction documents are the franchise agreement and the sale and purchase agreement.
The franchise agreement is the document, which outlines the deal between the franchisor and franchisee. Generally, the franchisor is not willing to negotiate on the terms of the franchise agreement and so a franchisee should get legal advice on the agreement at an early stage to make sure that they are aware of what they will be signing up to before investing too much in the transaction.
The sale and purchase agreement is the main agreement that sets out the terms of the asset or share sale, this is both the seller and the buyer’s opportunity to fine tune the terms of the agreement and both parties will need to get legal advice in order to minimise the risk of any post completion disputes or losses.
The franchisor will also be involved in the negotiation of the purchase agreement and this can sometimes complicate the process.
“Because franchise resales can be more complicated than a typical sale of an independent business, it is therefore important to plan ahead and start the process early whether you are buying or selling. You should instruct both a solicitor and an accountant experienced with franchise sales and purchases.
If you are considering entering into a franchise sale or purchase Mullis & Peake will be happy to assist. For further advice and assistance please contact our Commercial Team.”