How may I sell my franchise to another business owner?

On Behalf of | Sep 8, 2021 | purchase and sale agreements | 0 comments

Whether you wish to retire or start a new venture, your existing franchise agreement could contain terms specifying how you may market your business unit sale. Some franchisors may require you to sell your business back to the parent company.

As reported by Entrepreneur.com, contracts may include a right of first refusal, which provides franchisors the right to purchase the unit back from franchisees. Agreements may also contain clauses allowing the franchise corporation to buy remaining assets such as your unsold inventory, equipment and furniture.

How may I transfer a franchise to a new owner?

Agreements not requiring franchisees to sell units back to the franchisor may include terms on how you may transfer the business to a new owner. If your contract contains a non-competition covenant, you may face limitations on selling your business to a competitor in or near your geographic location.

When transferring your unit to its new owner, you may need to provide a degree of necessary training on using the franchisor’s intellectual properties. The company may require the new owner to assume your existing franchise agreement or enter into a new one. The new owner may also need to contribute to the franchisor’s advertising campaigns.

How may I liquidate my franchise business?

Because the franchisor considers you as an independent owner, you may not need permission to sell the portion of your business unrelated to your franchise agreement. Many businesses form as an s-corporation or a limited liability company, which may hold their own assets. This may provide an option to sell real estate or vehicles that you purchased to help you operate your franchise.

Franchise agreements may include penalties for selling in violation of a first refusal right. Before finding a buyer, reviewing an existing contract for possible legal issues may protect you from defaulting on your franchisee obligations.