Acquiring a franchise business

Tony Articles

Tony Moore of AMD Solicitors offers some guidance

In many ways the acquisition of a franchise business is similar to the purchase of any other business. Franchising is an arrangement by which a person can run their own business whilst using a name, trademark, design or other intellectual property and the goodwill attached to it.

There are a number of different structures possible for franchising ranging from the most straightforward Direct Franchise to the Master Franchise which may often be found in the international arena. In the former situation, the franchisor grants a number of individual franchisees the right to operate individual units of the franchise whilst, in the latter, the franchisor grants a master franchisee the right to sell unit franchises to third parties.

Initial considerations for the buyer will include identifying or having identified for him the key franchising assets, whether they can be transferred easily to him or her and the duration of the franchise. A prudent buyer will probably want to avoid both the very short term and excessively long term. The buyer will also need to consider territorial restrictions during the franchise and any restrictive provisions imposed on franchisees against competition after termination. Of concern will be whether the franchise agreement allows the franchisee to assign or sell his franchise. Typically, franchise agreements will enable the franchisor to retain control of the disposal of the franchise and impose on the franchisee strict conditions for sale, assignment or termination.

As with the acquisition of any business, getting the right legal framework is essential. So what should a potential franchisee be concerned with? He or she should make investigations about the franchise organisation itself. The compliance with any relevant voluntary codes, any information upon the day to day relationship between the franchisor and individual franchisees and whether there are any disputes or conflicts of interests, either historic or current, between franchisees for example, where new units or distribution methods of the franchisor may have taken sales away from an existing franchisees.

The buyer's due diligence is the name given to the process whereby the buyer and his advisors obtain and scrutinise the information relating to the business. This will include checking that the franchisor actually owns all of the Intellectual Property and Rights (IPR) that the franchisee is acquiring as part of the franchise arrangement and, where appropriate, that rights are protected by registration.

So what will a lawyer do? A specialist lawyer will be able to guide a potential franchisee through the acquisition process, obtaining information and advising on pitfalls to avoid, thus saving expensive mistakes.

Tony Moore and the other members of the Commercial Team at AMD Solicitors are available to offer further advice and information on buying, selling, leasing or franchising all types of business and commercial property. Telephone 0117 9621205 E-mail commercial@amdsolicitors.com.

AMD Solicitors have offices in Henleaze, Clifton and Shirehampton.

Copyright AMD Solicitors

 

Back to Index