Table of Contents
For franchisors, succession planning is essential to running a successful franchise network. Effective succession planning can ensure the continuity of your franchise business. It can help to safeguard your brand, protect your interests and generate a clear plan for the future. Whether you plan to pass your franchise network onto a family member, sell to an external party or plan for unforeseen circumstances, there are critical legal considerations you should understand. This article will explain franchise succession and several legal considerations associated with succession planning.
What is Succession in Franchising?
In franchising, succession refers to transferring ownership and control over a franchise network to a successor. Succession planning can also refer to the process of a franchisee planning to sell their business. However, in this article, succession refers to franchisors selling or transferring ownership of their franchise networks.
Planning for succession means preparing for your exit from the network. The new owner might be somebody you know, an existing franchisee, or an external buyer. You should thoroughly plan for the transition, no matter the buyer. Your priority is ensuring the franchise operates smoothly and successfully under new ownership. To facilitate this, you should address several legal, financial and operational considerations in advance.
1. Review Your Franchise Agreements
Reviewing the terms of the franchise agreements you share with your current franchisees is essential. It is especially crucial to keep these terms in mind during periods of considerable change. You should ensure that the terms of these agreements will remain enforceable under new ownership. Check for any clauses requiring you to notify franchisees about the sale or allow them particular rights during the transition. These can impact the actions you need to take.
Maintaining transparent communication with your franchisees and other stakeholders throughout the succession planning process helps to build trust and reduce uncertainty. For example, plan a series of meetings with your franchisees to inform them of your intention to sell the network. Following this, you can provide regular updates and address any concerns they might have.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
2. Conduct Thorough Due Diligence
You should also conduct thorough due diligence. Your due diligence can involve the following:
- seeking a professional valuation of the franchise network;
- evaluating the network’s financial health;
- assessing individual franchise performance; and
- identifying potential legal liabilities.
At this stage, it is a great idea to seek legal advice. A lawyer can help you generate a viable succession plan, identify and mitigate risks, and ensure a legally sound transition.
3. Consider the Legal Structure
Take time to understand the implications of your business’s legal structure on the sale process and your tax liabilities. Professionals such as lawyers and accountants versed in business sales can provide advice based on your circumstances.
4. Define the Transfer of Your Intellectual Property
You should document and protect the intellectual property associated with your franchise network, including aspects such as trade marks and patents.
Discover the key legal and commercial issues to consider when buying a franchise.
Check the registration status of these assets and clearly define their transfer in the sale agreement. Doing so will help you maintain your brand’s integrity and avoid future disputes.
5. Protect Key Relationships and Contracts
Good relationships help businesses operate. Your network will have connections with parties such as suppliers, service providers, and landlords. While succession planning, review the contracts you share with external parties. Ideally, they will remain valid and enforceable following your transfer of ownership. If necessary, negotiate new terms or agreements to facilitate a smooth transition.
6. Plan to Support Successors
To enable a smooth transition and your network’s continued success, you should help the successor step into their role. You should share your knowledge about the network’s operations, business model and best practices.
Key Takeaways
Effective franchise succession planning is crucial for your franchise network’s long-term success and stability. Several legal considerations are vital during this process. You should consider the following:
- reviewing your franchise agreements;
- maintaining transparent communication with your franchisees and other stakeholders;
- conducting thorough due diligence;
- seeking professional valuation and advice;
- understanding the implications of your business structure on the sale process and your tax obligations;
- protecting your brand’s intellectual property;
- reviewing relationships and contracts with external parties to ensure operational continuity; and
- planning to support your successors.
Thorough planning and seeking independent legal advice will help you navigate the complexities of succession and ensure your network thrives under new ownership.
If you require legal advice about franchise succession planning, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.
