Franchise succession: what to plan for before you buy

Buying a franchise also means thinking about who will keep the business running if the person in charge can no longer work. Death or incapacity can leave a family facing expenses, staffing responsibilities and urgent decisions, without clear authorisation to continue trading. Planning for succession before buying a franchise helps protect both the investment and the outlet’s continuity.

1. Understand what the law requires on succession

Article 2, item XVII of Law No. 13,966/2019, Brazil’s current Franchise Law, requires the franchise disclosure document, known locally as the Circular de Oferta de Franquia (COF), to state whether transfer or succession rules exist and, if so, what they are. This law replaced Law No. 8,955/1994.

This does not mean that heirs have an automatic right to operate the franchise. The legal requirement is to make the network’s rules transparent. Business continuity will also depend on the agreement, the company’s ownership and governance structure, and the applicable civil and inheritance laws.

It is important to distinguish between two issues: inheriting financial or ownership rights is not the same as being approved to run a franchise outlet. A stake in a company may form part of an inheritance, but operating under the brand may depend on specific contractual requirements.

Check whether the COF and the agreement expressly address the death of the franchisee or the partner responsible for running the business, as well as incapacity. If they mention only “transfer”, ask how that rule applies to succession. These are different situations and should not be left to improvised interpretation during an emergency.

2. Find out who can take over the business

Some franchises rely heavily on the personal involvement of an approved operator. Before buying, establish whether the agreement is with you, your company or both, and which obligations are tied to the individual designated to run the outlet.

Ask the franchisor specific questions:

• Can an heir apply to take over the business?
• What experience, availability and financial resources will they need?
• Will they have to undergo selection and training?
• Can the family appoint a professional manager?
• Is there a deadline for proposing and approving a replacement?
• What happens if no interested party meets the requirements?

Ask for criteria that can be checked objectively. A clause that simply makes everything subject to “the franchisor’s approval”, without a procedure or deadline, leaves important questions unanswered.

Do not assume that your spouse, child or business partner wants to run the outlet. Speak to those involved before buying. A potential successor must be willing, available and able to fulfil the agreement, as well as obtain any approval required by the franchise network.

3. Plan for the period before a successor is confirmed

Even where succession is allowed, there may be a gap between the operator stepping away and a replacement being approved. During that period, wages, rent and other obligations still need to be met.

Ask who can take temporary responsibility for the outlet and what authorisations will be needed. Will the franchisor allow an already trained manager to keep the business running? Is additional support available? Is there a charge for it? Who can authorise purchases and access essential systems?

Do not confuse the network’s permission to run the outlet with legal authority to represent the company. A franchisor’s approval of a manager, for example, does not in itself resolve banking, corporate governance or estate administration matters. A lawyer should assess the appropriate legal arrangements for each situation.

Draw up a business continuity plan identifying the people responsible, their contact details and the location of essential documents. It should provide for authorised access to information without relying on the informal sharing of personal passwords.

Check the transition costs too: training a replacement, hiring temporary management and any contractual charges. Ask how each amount is calculated and when it becomes payable, rather than assuming that succession will cost the same as selling the outlet.

4. Align the franchise agreement with the company documents

A succession provision in the franchise agreement may not work as the family expects if the company’s constitutional documents set out a different approach. The documents therefore need to be reviewed together.

Ask a lawyer you trust to compare the COF, the franchise agreement and the company documents. The aim is to identify inconsistencies concerning management, heirs becoming owners, authority to represent the company, and business continuity after the operator’s death or incapacity.

If succession is not permitted, clarify the alternatives, along with their deadlines and financial implications. Do not accept a verbal promise that “the network will take care of everything” as a solution. Procedures, responsibilities and conditions need to be documented.

In practice: before buying, make sure you can explain who will keep the outlet running, who can take over permanently and how much the transition could cost. If those answers remain vague, clarify the succession arrangements before signing.