Franchise System
Acquisition & Sales

When purchasing a Franchise system, it is important to:​

• recognise you are buying multiple assets and rights. These assets may be tangible (eg. equipment) and intangible (eg. intellectual property (IP)) rights;

• determine whether assets are unencumbered?. If not, appropriate releases may be required;

• assess if all intellectual property rights are up to date and registered (where registration is required);

• clarify if the Franchisor own the IP (or does a separate entity own the IP)?. It is not uncommon in franchising for intellectual property rights to be held by separate entities;

• confirm if there are any “corporate” owned sites, or are they all independently owned by Franchisees?;

• understand there will be various legal documents to be reviewed and/or prepared. The documentation required will depend on:

  • how the existing Franchise system is established;

  • what the parties require;

  • if the Franchise system is being assigned (as opposed to the Buyer buying shares in the Franchisor entity itself).

Assuming as assignment (which is the typical method), the legal documents may include:

• Confidentiality Agreement;

• Heads of Agreement (or similar “In Principle” Agreement);

• Business Sale Agreement;

• review of existing Franchise Agreements;

• review of existing Disclosure Document;

• review of existing Procedure Manual(s);

• searching trademarks and other IP;

• assignment documentation, for example, related to the Franchise Agreements and IP; and

• relevant ancillary documentation;

• are existing Franchise Agreements enforceable and of sound quality, or are amendments likely to be needed ?;

• are the existing Franchise Agreements assignable in the event of sale/purchase of the franchise system ?;

• is the franchise system Code compliant ?;

• is there any current litigation, or formal complaints with ACCC between the existing Franchisor and Franchisees ?;

• ensuring release/indemnity from ongoing liability linked to past claims;

• ensuring appropriate restraints of trade on the Seller;

• if the Franchisor has existing employees – do those employees transfer with the franchise business ?. If so, an assessment would need to be made of existing awards and Employment Agreements;

• are there any supply agreements in place between the Franchisor and third parties ? Are they to be assigned along with the franchise business ?;

• do there need to be any adjustments for franchise fees paid/accrued by Franchisees ?;

• is there an existing Marketing Fund ? If, so:

  • have funds been expended in compliance with the Code ?;

  • the balance of funds in the bank account would need to be transferred to the Buyer as part of the sale/purchase ?;

• stamp duty assessed against the purchase price would be payable by you as Buyer.