Buying an existing franchise in Colombia: what to check

Buying an existing franchise lets you assess actual sales, equipment and day-to-day operations. But receiving the keys does not guarantee that you can continue using the brand or avoid liabilities arising before the purchase. If you plan to enter the franchise market by taking over an existing business, separate three issues: what you are buying, what the franchisor authorises and which liabilities may come with the operation.

1. Establish what the owner is selling

The Spanish term ‘traspaso’ describes a business transfer in commercial usage, but does not adequately define the legal transaction. The offer may involve buying specific assets, acquiring a commercial establishment as a business unit under Colombian law, or buying shares in the company operating the outlet. Each option has different consequences.

Ask for the proposal to identify the seller, the holder of the franchise agreement and the owner of the assets. They are not necessarily the same person or entity. Then draw up a list distinguishing between:

• Equipment and furniture that are owned outright, leased or financed.
• Stock that is usable, expired, damaged or slow-moving.
• Contracts intended to remain in place or be assigned.
• Outstanding obligations and known claims.
• Rights requiring third-party approval.

If you buy shares in a company, that company retains its obligations: a change of ownership does not make it a new business. If you buy a commercial establishment, you should not assume that all debts remain solely the seller’s responsibility either. Commercial law rules on liability and creditor protection require professional review.

The price must relate to a clearly defined purchase, not a vague promise to hand over ‘the whole business’. An independent accountant and lawyer should review the structure before you accept a binding offer.

2. Confirm how you can continue operating the franchise

In Colombia, franchise agreements are not governed by a specific, comprehensive statutory framework. The agreed terms and relevant general provisions of the Commercial Code and Civil Code apply, alongside applicable employment, tax and intellectual property rules. Nor is there a general mandatory pre-contractual disclosure regime specifically for franchises requiring a legally standardised disclosure document.

It is therefore not enough for the seller to assure you that ‘the brand accepts the change’. Review the current agreement, its amendments and its provisions on assignment, changes of control and preferential purchase rights. Whether consent is required, and on what terms, must be checked against the agreement and applicable law. Common practice should not be confused with a universal legal prohibition.

Request written confirmation from the franchisor specifying:

• Whether the existing agreement will be assigned or a new one signed.
• Who the authorised franchisee will be.
• How much time will remain to operate under the agreement.
• What payments or alterations to the premises the change requires.
• Whether any outstanding breaches must be remedied.

Buying the operating company does not necessarily avoid these checks: the agreement may require approval for changes of control. Nor should you assume that the transfer restarts the contractual term. A substantial investment with little time remaining deserves particularly careful assessment.

3. Verify the outlet’s performance and obligations

An operating outlet provides evidence, but that evidence needs to be cross-checked. Request financial statements and outlet-level results covering several periods, and compare them with sales records, invoices, bank transactions and relevant tax returns. If the company has several outlets, insist on a clear breakdown of the income and expenses attributable to the one you would acquire.

Check whether the reported results allow for reasonable remuneration for managing the business, maintenance costs and all payments to the brand. Distinguish ordinary sales from exceptional income. The aim is to establish what the operation genuinely earns, rather than accept an unsupported profit figure calculated by the seller.

Also prepare a schedule of amounts owed to suppliers, the franchisor, employees and tax authorities. Proof of payment and third-party confirmations help, but do not replace a review of potential liabilities. Under employment law, a change of employer may constitute a ‘substitution of employer’ if the legal requirements are met. Do not assume that dismissing and rehiring staff removes liabilities.

Ask why the business is being sold and compare the answer with its performance over time. Discrepancies do not prove there is a problem, but they do justify asking for explanations before negotiating the final price.

4. Make completion conditional on specific checks

Structure the purchase so that payment and handover depend on verifiable conditions. These may include obtaining any approval required under the agreement, formalising the relationship with the brand and documenting the assets and obligations included in the transaction.

Agree on an inventory at completion, a cut-off date for income and expenses, and a written handover record. Specify who is responsible for any discrepancies identified and how claims relating to earlier events will be handled. An indemnity agreed with the seller may be useful, but it does not remove third-party rights or replace an assessment of the seller’s ability to meet those obligations.

Practical conclusion: do not simply buy an outlet that is open for business. Buy a clearly defined operation, with verified accounts and confirmed contractual continuity before releasing the purchase funds.