As a franchisor, you may be thinking:
‘How can I sell my franchise when I have agreements with multiple franchisees?’
There are several options to consider when selling your franchise.
|Option to Sell||Description|
|Assignment||Sell the rights to operate the franchise system in a geographic area by assigning the franchise agreements under a master franchise.|
|Sell Your Shares||Sell the whole business including the brand and any intellectual property or transfer your shares to the buyer, so they become the majority shareholder in the company.|
|Merge with a competitior||Merge with a competing franchise and potentially rebrand the network.|
Generally, you can sell without the franchisee’s consent. Below, we unpack these options to sell a franchise business including their advantages and disadvantages.
1. Right to Assign
Your franchise agreement should contain the right to transfer the business to a new owner (also known as the ‘right to assign’). This means that you can sell the entire franchise business to a buyer who then takes over your role as the franchisor. The purchaser then owns of the franchise’s intellectual property.
The process will either involve entering into new franchise agreements or assigning the old franchise agreement across to the new buyer. Sometimes, franchisors will issue a letter explaining that a sale has occurred introducing the new franchisor to the network and providing new bank account details of the new franchisor. Importantly, the existing franchisor will need to prepare and issue a new disclosure document to franchisees at least 14 days before the assignment takes place.
If the franchise network senses that the founder has jumped ship, there is a risk they may try to do so as well. It’s then in the best interests of all parties the sale is handled smoothly and that the franchisor explains to franchisees the benefits of the sale for the network.
2. Selling Your Shares
If you decide to sell your shares in the business, you don’t need to assign the franchisee agreement with other franchisees. This is because parties remain the same (i.e. the franchise as a company and the franchisees will still enter into the agreement). The franchisor should prepare a new disclosure document with new details from the date of completion of the share purchase. Although not strictly required under the Code as the francisor company is still the same, it would be prudent to consider issuing this disclosure document to the network to help explain the new ownership structure.
3. Merging With a Competitor
Many companies operate multiple brands as part of their business. This is quite common in the hotel industry where a single entity operates a variety of hotel brands. For instance, Starwood Hotels & Resorts operates Four Points by Sheraton, Sheraton Hotels & Resorts, Le Meridien and St Regis Hotels & Resorts, among others.
Merging with a competitor can be a lengthy process. If you are considering rebranding, consider whether it would assist in driving efficiencies or if the branding should remain separate. Review your franchise agreement and speak with a franchise lawyer before any rebranding exercise. This is to help step you through the range of transaction documents and regulatory implications you and the purchaser will need to comply.
Selling your franchise business can be both exciting and daunting. A franchise lawyer can help with making the transition as smooth as possible, and talk you through the different options available to you and your business. If you have any questions, get in touch on 1300 544 755.