Transferring a franchise to a new owner: set the rules before expanding

When preparing your business for franchising, the focus is usually on who will open the first franchised outlet. Less attention is paid to what happens when they want to sell it. Yet the ability to transfer an established business influences prospective franchisees’ decisions from the outset. To build a stable franchise network, set the rules for changes of ownership before signing the first agreement, rather than waiting until a buyer appears.

1. Distinguish between selling assets, assigning the agreement and changing shareholders

The phrase ‘selling a franchise’ can describe several legally distinct situations. Start by identifying which ones your documentation needs to cover.

• Sale of individual assets: the franchisee sells items such as equipment and stock. This does not automatically give the buyer the right to use the brand or operate your business concept.
• Assignment of the franchise agreement: another business is to take over the existing franchisee’s contractual position. You need to address the conditions for transferring rights and obligations, not simply handing over the keys.
• Sale of a shareholding in the company: the same company remains the operator, but its ownership changes. A change of shareholder does not generally amount to an assignment of the franchise agreement.
• Sale of a business as a going concern: under Czech law, this falls within a specific legal framework. Its effects on individual contracts, debts and authorisations require separate assessment.

In practice, a restriction on assigning the agreement does not, on its own, cover every change of ownership. If it matters to you who controls the franchisee, you also need an appropriately drafted change-of-control clause.

Before drafting the agreement, list some typical scenarios: a sale to another franchisee in the network, a transfer to family members or an investor taking a stake. For each, identify what the franchisor needs to assess and why.

2. Ground the process in Czech law

The Czech Republic has no dedicated franchising legislation or specific registration requirement for franchise agreements. A franchise agreement is usually concluded as an innominate contract under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. The Code’s general rules apply, along with provisions governing matters such as licensing, depending on the substance of the relationship. Competition rules and regulations governing the particular business activity also remain relevant.

Sections 1895 onwards of the Civil Code are important when assigning an agreement. They generally require the other contracting party’s consent and compliance with statutory conditions. You therefore cannot assume that a franchisee can simply sell their contractual position along with the equipment.

Have the agreement clearly distinguish, in legal terms, between assigning the existing agreement and terminating the original relationship so that the incoming franchisee signs a new agreement. The second option may change the term of the relationship, fees or territorial rights. Both seller and buyer should be aware of this possibility before negotiating the price of the business.

If you want a change in company ownership to require prior consent, define in particular which changes trigger that requirement, the notification obligation and the consequences of a breach. However, do not confuse a contractual obligation to obtain consent with the share sale itself automatically becoming invalid.

3. Make approval of the incoming owner predictable

The franchisor’s consent should not become an opaque barrier to a sale. At the same time, it must allow the franchisor to protect the brand and the functioning of the network as a whole. A process set out in advance, with clear information requirements and a designated person responsible, will help.

Request information proportionate to the risk: the identity of the future contracting party, its ownership structure, how the purchase and ongoing operations will be financed, and who will actually manage the outlet. Assess the incoming owner’s ability to run the established concept, not just to pay the purchase price.

The recommended process has four steps:

1. The existing franchisee notifies the franchisor of the proposed transfer before making an irreversible commitment to the buyer.
2. The franchisor provides a list of the required documents and information, together with instructions for submitting them securely.
3. Once all the required information has been received, the franchisor assesses the incoming owner against criteria disclosed in advance.
4. The franchisor communicates its decision, any conditions and the next steps in writing.

Agree a reasonable response period and specify when it starts. Do not promise swift approval without complete information. If the franchisee is to cover the cost of assessing or training the incoming owner, clarify in advance what those costs cover and how they will be calculated. A change of ownership should not be an opportunity to impose an unexpected additional fee.

4. Prepare a handover with no gap in responsibility

Approving the buyer does not mean the transfer is complete. Prepare a checklist of conditions that must be met by the agreed date. Depending on the transaction structure, these may include the contractual documents taking effect, permission to use the brand, arrangements for the premises, the necessary business licences and completion of essential training.

Explicitly address existing receivables and liabilities. Specify who will pay any franchise fees not yet invoiced and how stock levels and items on loan will be documented. Do not assume that a private agreement between seller and buyer will, by itself, change the rights of the franchisor or other creditors.

Record the date, the people responsible, the documents handed over and changes to system access in a handover record. Customer data and employees cannot be dealt with simply by passing on passwords; their treatment must be assessed under the relevant regulations and in light of the transaction structure. Give customers clear information about who will operate the business after the change.

Practical takeaway: Before granting your first franchise, map out the possible ownership changes, establish an approval process and create a handover checklist. Have these reviewed for legal consistency so that the franchisee can plan a sale and the franchisor knows who is taking responsibility for the ongoing operation.