Franchise transfers in Colombia: what to agree from the outset

When turning an existing business into a franchise, it is worth planning for what happens if the first franchisee wants to sell their operation. Finding a buyer is not enough: you need to establish which rights will transfer, who remains liable for existing obligations and how business continuity will be maintained. A well-drafted transfer clause protects trust across the franchise network without making an investor’s exit an unpredictable hurdle.

1. Distinguish a business sale from a transfer of the agreement

Selling equipment, stock or a business establishment does not, in itself, transfer all the rights arising under the franchise agreement. Nor does a share sale have the same effect as replacing the party that signed that agreement.

Before offering your first franchise, distinguish between these situations:

• Transfer of the agreement: another person or entity takes over the franchisee’s contractual position, subject to the applicable rules and agreed terms.
• Sale of the business establishment or assets: an operation or specific assets change hands; the effect on the franchise agreement must be reviewed separately.
• Change of corporate control: the same company remains party to the agreement, but control of that company changes.

This distinction allows you to define when approval is required, when notification is sufficient and which documents must be submitted. If the franchisor considers it essential to assess a change of control, this should be expressly stipulated with legal advice; relying on a general prohibition on transfers is not advisable.

It should also be clear that the buyer does not acquire ownership of the trade mark. Its use will depend on the rights granted and the conditions applicable after the transfer.

2. Apply Colombian law, not a draft regulation

In Colombia, franchising is an atypical contract: there is no comprehensive legal framework specifically governing this type of agreement. It is governed by the terms agreed between the parties and the relevant general provisions of the Commercial Code and Civil Code, including the duty of contractual good faith.

When structuring a transfer, the rules on the transfer of commercial contracts in Articles 887 onwards of the Commercial Code are particularly relevant. Applying them requires a review of the nature of the agreement, any agreed restrictions, the relevant acceptance or notification requirements, and the effects on the parties involved. A clause that simply states ‘the franchise may be sold’ is therefore insufficient.

In 2021, Colombia’s Ministry of Commerce, Industry and Tourism published a draft decree covering, among other matters, transfer rights and conditions. That document should not be presented as legislation in force. Nor should the proposed twenty-working-day period or Franchise Offering Circular be treated as binding requirements.

Similarly, a technical standard or code of ethics does not automatically have the status of law. If one is incorporated into the agreement, its scope should be clearly defined. The legal review should also address the rules applicable to the business establishment, employment obligations and the industrial property rights involved.

3. Establish a clear, predictable approval process

The franchisor needs to check that the successor can run the business, but the franchisee also needs to understand the procedure before investing. Set out a written process with objective criteria, rather than leaving the decision entirely subject to approval without defined conditions or deadlines.

The procedure may include:

1. Formal application: the buyer’s identity, the transaction structure and the proposed date.
2. Complete application file: financial information, relevant experience and the buyer’s ownership structure.
3. Assessment: the buyer’s ability to sustain the operation, availability to manage it and compliance with previously defined requirements.
4. Reasoned response: approval, a request for changes or a rejection with reasons, within the contractual deadline.
5. Completion conditions: signed documents, preparation of the new operator and the effective date of the change.

Also define what happens if documents are missing and when the response period starts. Do not leave it unclear whether a failure to respond has any effect.

If a fee will be charged for assessing or administering the transfer, specify what it covers, who must pay it and when payment is due. Distinguish this fee from any costs of preparing the buyer to take over; do not present duplicate or unspecified costs as an inevitable consequence of selling.

4. Document the handover without leaving obligations unresolved

Before completion, prepare a list of outstanding matters: royalties, stock, claims, commitments to customers and contracts needed to operate the business. For example, the continuation of the lease should not be taken for granted simply because the franchisor approves the buyer.

The transfer document should clarify whether the original contractual term continues or a new agreement will be signed, which obligations the buyer assumes and which remain with the outgoing franchisee. Any release of the outgoing franchisee and the treatment of guarantees must be expressly defined in legally valid terms.

Finally, coordinate the handover of access credentials, operational documentation and trade mark permissions, ensuring that the former operator does not retain authority they no longer hold.

Practical takeaway: before signing your first franchise agreement, draw up a transfer process that answers five questions: what is being sold, who approves it, which criteria apply, how much it costs and who remains liable after the change.