Ending a Franchise in Colombia: How to Plan the Exit

Before offering your business’s first franchise in Colombia, it is worth addressing an uncomfortable question: how will the relationship end if it stops working? Planning the exit protects the franchisor, the franchisee and their customers. Within a franchise network, an orderly closure matters just as much as a successful opening: it prevents premises from retaining the brand’s identity, orders from going unfulfilled and accounts from becoming impossible to reconcile.

1. Define the grounds and procedure for termination

In Colombia, a franchise agreement is an ‘atypical’ contract, meaning it has no specific, comprehensive statutory framework. It is governed by the agreed terms and the general rules that apply, particularly the Commercial Code and, where relevant, the Civil Code. Freedom of contract must respect mandatory legal provisions and the principle of good faith.

Colombia’s Ministry of Justice recognises this atypical status. You should therefore avoid copying clauses from foreign contracts on the assumption that their termination mechanisms will automatically work in Colombia. Nor should the draft decree on franchising published by the Ministry of Commerce, Industry and Tourism (MinCIT) in 2021 be presented as legislation currently in force.

Subject to legal review, the agreement should distinguish at least between the following situations:

• Expiry of the term: the relationship ends on the agreed date, unless it is to be renewed.
• Termination by mutual agreement: both parties negotiate and document an exit.
• Breach of contract: one party invokes the remedies available under the agreement and the law.
• Agreed early exit: termination is permitted on express conditions, if the parties choose to include this option.

For each scenario, define who gives notice of the decision, by what means, how far in advance and what facts must be established. Do not treat every operational error as grounds for immediate termination. Identify breaches that can be remedied and establish a reasonable procedure for putting them right; for serious breaches, agree on a legally valid and proportionate response.

2. Prepare to remove the brand identity

Contractual termination and physical closure do not always happen at the same time. The outlet may continue trading as an independent business, but it should no longer present itself as an authorised member of the network once that right has ended.

Prepare an inventory of items that must be removed, returned or no longer used: signs, uniforms, packaging, menus or product lists, promotional materials and business documents. Include digital profiles, live advertisements and references to the outlet on the brand’s own channels.

For each item, assign a responsible person, a deadline and the evidence required to confirm completion. A photograph may demonstrate that a sign has been removed; a deactivation confirmation may serve as evidence that digital access has been withdrawn. Avoid requiring the indiscriminate deletion or destruction of documents that must be retained for legal or accounting reasons.

The agreement should coordinate the end of permission to use the trade mark with these tasks. Industrial property is governed, among other provisions, by Decision 486 of the Andean Community. The exit does not entitle the franchisor to seize the franchisee’s assets or forcibly enter the premises: any action must have a contractual and legal basis.

3. Resolve stock, orders and outstanding commitments

Do not assume that the franchisor will buy back all stock. If a buyback is planned, agree which products qualify, how their condition will be checked, how the price will be determined and who will bear the transport costs. Distinguish generic goods from branded items that cannot be sold freely once the licence has ended.

You must also define who will handle paid orders, advance payments, warranties and services not yet provided. Law 1480 of 2011, Colombia’s Consumer Protection Statute, remains relevant to customers; an internal exit agreement cannot remove their rights or any applicable legal responsibilities.

Prepare a verifiable record of outstanding commitments. If another outlet will fulfil an order, confirm its acceptance and inform the customer of the applicable terms. Do not promise continuity unless there is genuine capacity to deliver it.

Remember that ending the franchise does not automatically terminate leases, employment relationships or obligations to suppliers. Each relationship must be dealt with separately.

4. Document the final settlement and verify the exit

Prepare a template for a closure record now. It should allow you to record the effective termination date, outstanding balances, returns, progress on removing branding and obligations that survive termination, such as validly agreed confidentiality obligations.

Avoid issuing a blanket clearance or release while disagreements remain. It is better to identify agreed amounts, disputed amounts and the mechanism for resolving them. The return of equipment or materials should be supported by inventories and handover records.

Assign someone to verify completion of the exit process and document outstanding matters. Practical takeaway: before marketing your franchise, prepare a legally reviewed termination clause and an operational exit checklist. If you cannot explain who does what when the relationship ends, there is still contractual work to do.