Managing Ownership Transfers of Franchise Outlets

When preparing a business for franchising, owners often assume that their first franchisee will run the outlet until the agreement expires. In practice, a franchisee may sell the business, change its shareholders or hand over management to family members. Ownership transfer rules need to be in place before the franchise is offered, not when a buyer for the outlet has already appeared. Across a franchise network, this clarity helps maintain business continuity while treating franchisees fairly.

1. Distinguish between asset sales and transfers of franchise rights

The phrase “selling an outlet” can refer to several different transactions. Each requires its own checks, because owning the equipment does not automatically confer the right to use the brand and business system.

Address at least these four scenarios:

• Asset sale: equipment, stock and fittings change hands, but rights under the franchise agreement do not automatically transfer with them.
• Transfer of the agreement: another party replaces the franchisee as the holder of the contractual rights and obligations.
• Change of corporate control: the franchisee remains the same legal entity, but the party controlling it changes.
• Inheritance: the owner's death may lead to a change in ownership or a need for temporary management, depending on the business structure and legal documents.

Specify which events require notification and which require written consent. Do not treat a change of manager as a business sale. Equally, do not allow the sale of a controlling shareholding to become a way of bypassing checks on the prospective new operator.

2. Place the rules within the right legal framework

Indonesia's principal franchise legislation is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. Contract templates that refer only to the old rules should therefore be reviewed before use.

Government Regulation No. 35 of 2024 provides that franchise agreements are governed by Indonesian law and that the parties have equal legal standing. The minimum required content includes ownership, changes of ownership and heirs' rights. Transfers should therefore not be left to verbal agreement alone.

For transactions that result in a franchise agreement with a new franchisee, build the requirement to provide the prospectus at least 14 calendar days before signing into the timetable. Do not assume that buying an existing outlet removes the need for disclosure to the prospective new franchisee.

Also check how the change affects the Franchise Registration Certificate, known locally as the Surat Tanda Pendaftaran Waralaba or STPW, and relevant business licences. Do not assume that registration in the previous owner's name automatically covers the new party. The transaction structure determines which documents need updating; ask a legal adviser to review the agreement, corporate documents and administrative requirements.

3. Create a transparent approval process

A clause stating that “transfers require the franchisor's consent” is not enough to guide implementation. Support it with a procedure that can be followed without relying on ad hoc decisions by the brand owner.

Prepare a list of application documents covering the proposed replacement's identity, ownership structure, funding capacity, management plan, transaction structure and proposed timetable. Request enough information to assess suitability, rather than unrelated personal documents.

Use objective approval criteria, such as the ability to fund operations, willingness to undertake training and capacity to meet contractual obligations. These criteria form part of your internal governance arrangements; they are not a list of specific requirements all prescribed by law.

Set a response deadline that runs from the date the application is deemed complete, identify who makes the decision and explain how reasons for refusal will be communicated. If there are assessment or retraining fees, make clear from the outset how they are calculated and who pays them. Avoid unexpected charges introduced only after the franchisee has found a buyer.

Separate approval of the prospective franchisee from final approval of the transaction. A candidate may be deemed suitable, but the handover must still wait until all conditions have been met.

4. Separate existing obligations from new ones

Before approving the transfer, prepare a schedule of outstanding obligations as at the handover date. Include overdue royalties, supplier invoices, rent, stock, customer advance payments, unused vouchers and employment-related obligations.

Do not assume that an agreement between seller and buyer automatically binds the landlord, employees, suppliers or customers. Changing a party to certain contracts may require separate consent or legal steps.

Use the transaction documents to clarify:

• who is responsible for obligations before and after the handover;
• when system access, cash and stock will be handed over;
• how complaints relating to transactions before the transfer will be handled;
• whether the outgoing party is released from particular obligations, and by whom.

If customer data will be transferred or accessed by the new operator, review the lawful basis for processing and the safeguards in place under Indonesia's Law No. 27 of 2022 on Personal Data Protection. Do not hand over the entire database simply because the outlet's assets have been paid for.

5. Make the handover a formal checkpoint

Prepare a transaction completion checklist for the relevant parties to sign. Ensure that the documents have taken effect, the necessary consents have been obtained, training is complete and previous access rights are revoked on schedule. Record stock levels, equipment condition and any outstanding customer transactions.

For example, if the buyer asks to start operating before the paperwork is complete, do not let them use the previous owner's account as a shortcut. Delay the transfer of control until the legal basis for operating and the allocation of responsibilities are clear.

Practical step: before recruiting your first franchisee, prepare a transfer clause, an application form and a handover checklist. Work through asset sale, controlling shareholder change and inheritance scenarios with your legal adviser to test all three.