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

Buying a franchise is often a family financial decision, yet discussions before signing usually focus on opening the outlet. The owner’s death, however, can leave difficult questions unanswered: who may run the business, does the right to use the brand continue, and how will the outlet’s bills be paid? Clear business continuity provisions help protect the family while maintaining service for customers.

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

Do not assume that heirs automatically receive permission to run the outlet under the same brand. Ownership of assets, status as a party to the agreement and approval to manage the business are separate matters. The outcome depends on the business structure, the contract and the applicable inheritance and company laws.

First, check who is named as the franchisee in the draft contract. If the franchisee is an individual, that person’s death immediately raises questions about whether the contractual relationship continues. If the franchisee is a limited liability company, a shareholder’s death does not, in itself, mean that the company ceases to exist as a party to the contract. However, a change in ownership or the death of a key manager may still trigger particular clauses.

Ask the franchisor to answer these questions in writing:

• Is the owner’s death grounds for terminating the contract?
• May the heirs nominate a successor or a professional manager?
• Is a transfer of shares treated differently from a transfer of the agreement?
• Who may represent the franchisee while the inheritance paperwork is being completed?

An assurance that “we will help when the time comes” is not enough. Ask for details of the procedure, the documents required and who has authority to make decisions.

2. Work from the applicable legal framework, not assumptions

Indonesia has specific franchise legislation: Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It governs franchise arrangements, including the franchise offering prospectus, franchise agreements and the Franchise Registration Certificate, known locally as the STPW.

Franchisors and sub-franchisors must provide the offering prospectus to prospective franchisees at least 14 calendar days before the agreement is signed. Use this review period to compare explanations of business continuity with the death, transfer and termination clauses in the draft contract.

The agreement is also subject to the general rules of contract law in the Indonesian Civil Code, known as the KUHPerdata. Article 1338 broadly provides that agreements lawfully entered into are binding on the parties. A franchise contract does not, however, replace the process of establishing who the lawful heirs are or the rules governing company management.

Keep these two reviews separate: a legal adviser should assess whether contractual rights continue, while a notary or another appropriate professional should help review inheritance and company documents. Do not treat the STPW as proof that someone is automatically entitled to inherit or manage the outlet.

3. Negotiate a transition period and requirements for successors

The aim of negotiation is not to guarantee that anyone can take over without being assessed. Franchisors have a legitimate interest in maintaining operating standards. What you need to avoid is an abrupt shutdown or a decision made without criteria the family can understand.

Propose written provisions covering these five points:

• Notification: who must receive notice of the death, which initial documents are required and how the notification deadline is calculated.
• Interim management: who may handle day-to-day operations and how approval is granted.
• Transition period: time to complete the paperwork and nominate a successor, including possible extensions if legal proceedings remain unresolved.
• Successor assessment: requirements for experience, training and financial capacity, with any reasons for rejection provided in writing.
• Final decision: a deadline for the franchisor to respond once the application documents have been confirmed as complete.

Make sure the transition provisions specify whether the outlet may continue using the brand, ordering supplies and accessing the point-of-sale system. Without that access, permission to continue trading may be of little practical use.

Also distinguish between heirs who receive the economic benefits of ownership and the person who manages the business. The family may want to retain the business without having anyone ready to run it day to day. Ask whether a professional manager could fulfil that role without requiring the heirs to become hands-on operators.

4. Map out finances, documents and options if a successor is rejected

The owner’s death does not automatically stop the outlet’s bills. List the royalties, rent, wages, supplier obligations and loan repayments that will need to be reviewed during the transition. Establish who is legally authorised to instruct payments; do not rely on using the deceased person’s bank account or passwords.

Ask whether approval of a successor involves administration, training or transfer fees. Request written details of how these are calculated and when they must be paid. Also clarify whether the successor takes over the remaining contract term or must sign a new agreement on different terms.

If no successor is approved, the contract should provide a clear route for proposing a buyer for the outlet or closing it in an orderly manner. Ask for clarity on selling assets and settling liabilities, without assuming that the franchisor is obliged to buy back the business.

Prepare a family file containing the contract, the franchisor’s contact details, company documents, a list of obligations and instructions for authorised access. Store it securely and tell a trusted person where it is kept.

Practical step: before signing, ask for a single written explanation of what happens from the owner’s death until a successor is accepted or the outlet closes. Make sure it matches the contract rather than merely offering a promise of support.