Buying a Franchise: Protect Your Heirs’ Rights in the Contract

Buying a franchise is often a family financial decision, yet contract discussions usually focus on opening the outlet. If the franchisee dies, however, the family needs to know who can manage the business and how contractual rights will be handled. Clear provisions for heirs help protect the family while maintaining service, safeguarding employees’ jobs and preserving the relationship with the franchisor.

1. Distinguish inherited assets from the right to operate the franchise

Equipment, stock, shares and rights under an agreement are not the same thing. Family members may have an interest in inherited assets, but they should not assume this automatically entitles them to operate the outlet using the franchisor’s brand and systems without checking the contract.

Start by checking who is named as the franchisee in the agreement: an individual or a business entity. This distinction determines which questions you need to ask.

• If the franchisee is an individual: what happens to the agreement when that person dies? Is there a procedure allowing heirs to continue the business?
• If the franchisee is a company: does a shareholder’s death trigger a change-of-ownership or change-of-control clause? Who has the authority to replace a director if necessary?
• If the owner is also required to manage the business: can an approved replacement manager fulfil that obligation?

For a company, a change of shareholders does not in itself change the legal entity that holds the franchise. However, the contract may contain specific provisions on changes in ownership and management. Ask a legal adviser to examine how the franchise agreement, company documents and family arrangements interact.

2. Use Indonesian regulations as the basis for your checks

Indonesia specifically regulates franchising through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It covers matters including the franchise offering prospectus, agreements, the rights and obligations of those involved in franchising, and the Franchise Registration Certificate, known locally as the STPW.

Government Regulation No. 35 of 2024 requires franchisors or sub-franchisors to provide a prospectus to prospective franchisees at least 14 calendar days before the agreement is signed. Use this review period to request a draft contract and a written explanation of what happens to the business if the franchisee dies.

Franchise regulations do not replace all the rules governing inheritance and the authority to manage a business entity. The outcome also depends on the ownership structure, applicable inheritance law, company documents and the terms of the agreement. Do not assume that simply naming a family member is enough to ensure the business can continue.

Ask the franchisor to identify the clauses covering ownership, changes in ownership and heirs’ rights. If the answer is merely a promise that “the family will certainly receive help”, ask for the arrangements to be set out in a binding document. Franchise registration is no substitute for clear contractual provisions.

3. Negotiate a workable transition period

Practical risks arise from day one: the outlet needs to open, employees need direction and payments must continue. A clause stating only that heirs may submit an application does not address these operational needs.

Propose written arrangements covering the following five points. These are matters for negotiation, not automatic rights guaranteed to every franchisee.

1. Notification of death. Specify who must be notified, which documents are initially required and how any further documents should be submitted.
2. Interim management. Explain who may be proposed to keep the business running, the competence requirements they must meet and the limits of their authority. The appointment must still be made by someone legally authorised to do so.
3. Transition period. Request a realistic amount of time for the family to organise the documents and propose a permanent manager.
4. Assessment of a proposed successor. Set criteria such as training, operational capability and compliance with business requirements, along with a deadline for a response.
5. Costs of continuing the business. Clarify whether there are administration, training or new-agreement fees, including how they are determined.

Avoid approval wording that leaves the decision entirely to the franchisor’s discretion, without criteria or deadlines. Request written reasons if a proposed successor is rejected, and an opportunity to nominate someone else. Also establish whether the outlet may continue operating while the application is being considered and which obligations remain in force.

4. Test the clauses against a family scenario

Before signing, put forward a simple scenario: the owner dies, their spouse has no experience of running the business, and the outlet manager is still employed. Ask the franchisor to explain the sequence of actions by reference to the contract clauses, rather than informal practice.

Can the manager continue in their role? Who can lawfully give instructions? What happens if the heirs have not yet agreed on a successor? Is there an agreed way forward if the family does not want to continue the business? Answers that cannot be traced back to the documents reveal areas that need clarification.

Also prepare a family file containing copies of the contract, the franchisor’s contact details, business entity documents and a list of recurring obligations. Do not share personal passwords as a substitute for proper authorisation arrangements. Access to bank accounts and business systems must follow lawful procedures.

Practical step: before buying, make sure the contract answers three questions: who will keep the business running temporarily, how the heirs can propose a successor, and what happens if the application is not approved. Seek a legal review before relying on promises that the business can continue.