​​Key Legal Considerations When Selling a Franchise

Are you thinking about selling your franchise business? Many different reasons drive franchisees to sell their units. Selling a business can be a complex process to navigate, and there are crucial legal implications attached to a franchise resale. However, do not be discouraged. This article will break down the key legal considerations in selling a franchise in the UK so that you can confidently approach the process.

Planning the Sale 

It is essential to begin the sale of your franchise with a well-thought-out plan. Selling a business does not happen overnight. It can take time. Therefore, there are several steps you should take to initiate the process of selling your franchise.

1. Check Your Franchise Agreement 

Your first step should be to review the franchise agreement. The franchise agreement forms the basis of your legal relationship with the franchisor and your unit. It contains the terms you must follow to sell your franchise. It will include information about the:

• process of selling the franchise; 
• fees you will need to pay; and
• franchisor’s consent requirements.

You should establish a clear path for the sale from your review of the franchise agreement. 

2. Seek Legal Advice

Perhaps this is your first time selling a business. This can be a very complex process. As a result, you should seek the advice of an expert franchise lawyer early on. Franchise solicitors are well-versed in navigating this type of business sale and can help you prepare the business and relevant business documents. Through the help of a lawyer, you can help prevent future legal issues from arising.

3. Financial Planning

It is a good idea to seek professional financial advice at this early stage as there are significant financial considerations. How you structure your franchise’s sale determines the type and amount of taxes you will owe.

4. Inform the Franchisor

You will need to inform the franchisor of your decision to sell. They should be involved in the process from the start. You should refer to the franchise agreement, which will include details about:

• obtaining the franchisor’s consent for the sale; and 
• whether the franchisor must be offered the first right to buy the franchise business from you.

The franchisor will also make the final decision on the suitability of a prospective buyer, so keep an open channel of communication. They may already have somebody in mind who is eager to fill the role. 

Selling the Franchise

At this next stage of selling your franchise, you will need to:

• consider a professional valuation of the business; 
• get all necessary documentation together; and
• find a buyer.

1. Consider a Professional Valuation

It is essential to establish the value of your business in order to market it to prospective buyers. What your franchise is worth depends on many factors, including its: 

• assets; 
• potential for growth;
• industry; and 
• level of innovation. 

2. Gather Necessary Documents

The sale of a business involves the preparation of multiple documents, including documents that either you or the franchisor must provide prospective buyers with.  

These documents include:

• a franchise disclosure document (if there is one);
• the franchise agreement; 
• information about the business’ accounts; 
• a business purchase agreement; and 
• where the franchise business operates out of leased premises, the draft licence to assign after obtaining the landlord’s consent to the lease transfer.

3. Find a Buyer

There are a handful of ways you can find a buyer. Firstly, ask the franchisor if they have a potential buyer in mind. Secondly, tell your employees you are considering selling your franchise. Perhaps one of them would like to buy it. Alternatively, you can find a buyer by marketing your business. 

The Sale

The final stage is the completion of the franchise sale. As you approach completion, all documents should be in order, you should have found a buyer, and you will set a closing date. At this point, ensuring that your franchise continues to operate smoothly is crucial, as you remain responsible for the business until you complete the sale. 

On the closing date, the buyer will transfer the necessary funds, and the buyer will obtain ownership of the franchise. 

Key Takeaways

Selling a franchise can be a complex, time-consuming, and stressful time. You must seek the advice of professionals who can guide you through the process of your business sale if you feel that you need it. With careful planning, preparation, and execution, you will set the sale up for success. 

If you are selling your franchise and would like expert legal advice, our 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.