As a franchisor, you may be thinking, how can I sell my franchise when I have agreements with multiple franchisees? You have a few options in selling your business, and as the franchisor, you don’t require the franchisee’s consent to do so.

You have the ability to sell your rights to operate the franchise system, which includes the brand and any intellectual property like patents and trade marks. You could also transfer your shares in your business to the buyer, so they become the major shareholder in the company. You could merge with a competing franchise, and finally, if it applies to your business, it can be sold by an appointed liquidator.

Right to assign

Your right to transfer the franchise business to a new owner is often called 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. They then become the owner of all of the intellectual property of the franchise. The franchisee has two options:

  1. She or he can either enter into a new franchise agreement with the buyer on the same terms they had with you, or
  2. She or he can enter into an agreement with both of you that sets out how your rights and obligations are transferred to the buyer.

Selling your shares

If you decide you would prefer to sell your shares in the business, then you don’t need to assign the franchise agreement you have with the franchisees. This is because the agreement will still be entered into between the franchise as a company and the franchisees, and so the parties will remain the same. In this situation, the franchisees will be notified within 14 days of the change in ownership of the business, setting out that the new shareholder will be the majority owner. The buyer will then become the new franchisor, and they have to prepare a new disclosure document of the details of their entity and what they intend to do with the franchise.

Merging with a competitor

You may consider combining your franchise business with that of a competitor.  Many companies operate multiple brands as part of their business. For example, this is quite common in the hotel industry where a single entity operates a variety of hotel brands. For example, Starwood Hotels & Resorts operates Four Points by Sheraton, Sheraton Hotels & Resorts, Le Meridien and St Regis Hotels & Resorts, among others. The process of merging with a competitor is quite extensive. It is then prudent that you seek advice from an investment banker or a mergers and acquisitions specialist.  This is to help step you through the range of transaction documents, and regulatory implications both you and the purchaser will need to comply with.

Conclusion

Selling your franchise business as the franchisor can come with many challenges. A franchise specialist can help with making the transition as smooth as possible, and talk you through the different options available to you and your business. Consider contacting LegalVision today on 1300 544 755 for all of your franchising needs.

Bianca Reynolds

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