Franchise Advice
An investment realised
Manzoor Ishani advises on the conditions of a resale “B
e your own boss – run your own business!” – it’s the sort of slogan that is projected at those starting out on their franchise
research all the time. It is true that one of the principal reasons why people buy franchises is that they get to own their business and, after years of hard work and the time has come to retire or to move on, they are able to sell their business as a going concern and realise a gain. Franchisors also emphasise this aspect of franchising and it certainly plays a major part in motivating franchisees to grow
their business. Franchisees who take the trouble to seek expert legal advice will have the significance of the small print found in many franchise contracts explained to them; that is, the conditions that franchisors impose and franchisees need to satisfy before they can sell their businesses.
Ethical franchising requires franchisors to permit their franchisees to sell their businesses, albeit subject to certain conditions. These conditions need not be unduly onerous and are designed to protect the trade secrets of the franchisor, the integrity of the franchised network and maintain the quality of its franchisees.
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Businessfranchise.com | December/January 2015
What is not often clearly understood, however, is that in many cases franchisors reserve for themselves rights of first refusal. There is nothing wrong with this in principle, provided the terms are fair. Experience has shown that most franchisors rely on one of two methods for valuing a franchisee’s business if they want to exercise their option to buy. In both cases, the franchisee is required to offer the business to the franchisor first, before going on to sell to a third party.
One mechanism is that franchise
agreements provide that if a franchisee wishes to sell, the franchisee has to notify the franchisor of any offer the franchisee has
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