Franchise transfers in Croatia: rules for a change of ownership

When turning an existing business into a franchise, it is easy to focus solely on opening new outlets. Yet a franchisee may one day want to sell the business, retire or bring in a new owner. Rules for these changes should be prepared before the first agreement is signed. They protect continuity of service, the franchisee’s investment and trust across the franchise network, without creating unnecessary barriers to a legitimate sale.

1. Define exactly what is being transferred

The term ‘franchise sale’ can describe different types of transaction. For the franchisor, simply knowing that a new owner is coming in is not enough: it is necessary to establish whether the contracting party is changing, who is taking over the business and which rights can actually pass to the buyer.

Distinguish between at least three situations:

• Sale of shares or ownership interests: the company that holds the franchise remains the same, but its owners or the control of the company change.
• Sale of assets and the business: the buyer acquires agreed equipment, stock or other parts of the business, but does not automatically become a franchisee.
• Transfer of the franchise agreement: a new business operator takes over the existing franchisee’s contractual position, subject to the necessary consents and appropriate transfer arrangements.

For example, buying an outlet’s equipment does not, in itself, give the buyer the right to use your trade mark. Equally, a sale of shares does not automatically mean that the franchise agreement has been transferred to another legal entity.

Before drafting the agreement, list the changes you want to monitor: a change of control, a new majority owner, a change of the manager responsible for the outlet, and a transfer of the business to another entity. For each, specify whether notification or prior consent is required. Do not treat every minor ownership change in the same way if its effect on the business is different.

2. Align the process with Croatia’s legal framework

Croatia has no dedicated law comprehensively regulating franchising. Nor is there a general compulsory franchise register or a statutory pre-contractual disclosure regime specifically for franchises. This does not mean that a transfer can be arranged without reference to general legislation.

The Civil Obligations Act (Zakon o obveznim odnosima) is important for contractual obligations, consent and the transfer of agreements. Under this Act, transferring an agreement requires the consent of the other contracting party; a sale agreement between the franchisee and the buyer is not enough, on its own, to bind the franchisor.

The Companies Act (Zakon o trgovačkim društvima) is relevant when shares or ownership interests are transferred, or when a company undergoes a corporate reorganisation. The Trade Mark Act (Zakon o žigu) is important for rights to use the mark. Depending on the structure of the transaction, the application of the Labour Act (Zakon o radu) should also be checked, particularly its rules on the transfer of employment contracts when a business or part of one is transferred.

The agreement should therefore clearly distinguish between transferring a contractual position and changing the ownership of a company. A lawyer should review the form and legal effects of each document, while an accountant should check the transaction’s tax treatment. The franchisor’s consent does not replace checks on the lease, licences and other requirements for continuing the particular business activity.

3. Set predictable conditions for consent

The franchisor needs to know who will continue trading under its name. It is equally important for the franchisee to know whether they can sell their investment on clear terms. Rather than relying on a vague clause stating that the franchisor ‘decides at its own discretion’, establish a process based on verifiable criteria.

The agreement and accompanying application form should specify:

• what information the seller must provide about the proposed transaction and the buyer;
• how the buyer’s financial capacity and operational readiness will be assessed;
• what training the buyer or their manager must complete;
• how overdue payments and existing failures to meet standards will be addressed;
• the deadline for a response once all required documents have been received;
• how reasons for refusal will be given and whether the application can be supplemented.

State explicitly whether the buyer will continue under the existing agreement until it expires or enter into a new one. Do not allow the buyer to assume that purchasing an outlet gives them a fresh, full contractual term.

If you intend to charge a transfer processing fee, explain in advance what it covers and when it becomes payable. Set out the costs of checks, training and document preparation separately to avoid charging twice for the same service.

4. Prepare a handover that keeps the business running

Approving the buyer is only one step. Before completion, prepare a joint timetable for the seller, buyer and franchisor, identifying who is responsible for each obligation.

The handover record should cover the condition of equipment and stock, outstanding orders, customer deposits, gift vouchers and unresolved complaints. For each item, record who is taking responsibility and how obligations to customers will be met. An internal agreement between the parties must not be treated as removing customers’ rights.

Specify when authority over business systems, ordering and local communication channels will pass to the buyer. Revoke old access rights and grant new ones to authorised individuals; do not simply hand over existing passwords. Check the transfer of personal data separately against data protection requirements.

Practical takeaway: before offering your first franchise, prepare transfer clauses, a consent application form and a handover checklist. This makes a change of ownership a planned process rather than an emergency for the entire franchise network.