Buying an Existing Franchise in Lebanon: Checking Liabilities Before Ownership Changes

Buying an existing franchise outlet in Lebanon may seem easier than setting up a new one: the premises are equipped, staff know the business, and customers are familiar with the location. But entering franchising this way calls for a question beyond the brand’s commercial appeal: which liabilities will remain with the business once you take it over? This guide focuses on separating what you are buying from the debts and claims that may come with it, before you agree on the final price.

1. Establish what you are legally buying before assessing the price

The phrase ‘sale of the outlet’ does not adequately describe the transaction. You might be buying shares in the company that operates it, purchasing selected assets, or acquiring a commercial business as a going concern. The procedures and implications for creditors depend on the structure, not simply the label the parties give the contract.

When you buy shares, the company continues to exist with its rights and obligations intact; a change of ownership does not erase its tax or contractual history. Buying assets, by contrast, does not automatically transfer all the seller’s debts to you, but nor does it guarantee that you will avoid liabilities imposed by law or attached to the rights being transferred.

Ask your lawyer for a written description of the transaction structure and your accountant for a comparison of the implications of each option. Attach a schedule to the contract specifying:

• The assets included, who owns each one, and any security interests or third-party rights over them.
• The contracts and rights to be transferred, and the approvals required.
• The liabilities you expressly agree to assume and those that remain with the seller.
• The cash, receivables and stock included in, or excluded from, the price.

2. Understand the legal protections without assuming special safeguards apply

Lebanon has no comprehensive law specifically governing franchise agreements, nor a dedicated statutory regime requiring a standardised disclosure document of the kind used in some countries. Depending on the issue, the Code of Obligations and Contracts, the Commercial Code, consumer protection and intellectual property legislation, and relevant tax and employment rules apply.

The purchase of a company or commercial business is also subject to rules and procedures appropriate to its structure. Do not replace legal due diligence with a general assurance from the seller that the outlet is ‘free of problems’. Ask your advisers to identify any applicable registration and publication procedures, creditors’ rights, and the requirements that must be met before the purchase funds are released.

Another question may be whether the relationship falls within Legislative Decree No. 34 of 1967 on commercial representation. Its application to a relationship described as a franchise is not automatic: the substance of that relationship and the rules in force must be examined. Do not assume that buying an outlet trading under a foreign brand gives you the protections available to a commercial agent.

Professional codes issued by associations, including the Lebanese Franchise Association’s Code of Ethics, should not be treated as general law binding on every seller. Check their scope of application and which obligations are actually incorporated into the transaction documents.

3. Turn due diligence into a verifiable picture of liabilities

Request documents covering an appropriate period, as determined by your advisers in light of the business’s history and risks—not just its latest month of trading. Reconcile the accounts with supporting documents and record any discrepancies requiring explanation or settlement.

Tax and social security: Review returns, proof of payment, correspondence and ongoing audits. Request any certificates or clearances that are available and relevant to the transaction, and check their scope: a document covering one particular obligation does not necessarily establish that the business has no other liabilities.

Employees: Examine employment contracts, wages, leave entitlements, potential claims and registration with the National Social Security Fund. Establish the legal effect of the business transfer on employment relationships, and do not assume that signing new contracts extinguishes existing rights.

Customers and suppliers: Identify customer deposits, unfulfilled orders, gift cards, subscriptions and outstanding supplier balances. These obligations may require cash or services after you take over, even if the seller has already received the related income.

The franchisor: Obtain direct confirmation of outstanding amounts, notified breaches and any deadlines for remedying them. Do not rely solely on copies of correspondence selected by the seller.

4. Make the franchisor’s approval a condition of completion

Buying equipment or company shares does not automatically give you the franchisor’s approval to operate the outlet. The franchise agreement may require consent to an assignment or a change of control of the operating company, even if the company’s name remains unchanged.

Get written answers: will you continue under the existing agreement, or sign a new one? Who will pay the transfer fees and bear the cost of remedying previous breaches? Is approval final, or subject to further conditions?

Make completion conditional on obtaining the required approvals, and specify what happens to any sums already paid if those approvals are not secured. If a new agreement is required, review it in full: paying for the outlet does not, in itself, establish that the previous operating terms will continue.

5. Link payment to the resolution of risks

Allocate the risks identified through the sale agreement rather than relying solely on a price reduction. You can negotiate specific warranties about the accuracy of information, an indemnity for undisclosed pre-existing liabilities, and the retention of part of the price for an agreed period under a clearly defined legal arrangement.

Specify how claims must be notified, what supporting documents are required and how disputes will be handled. Assess the seller’s ability to meet any indemnity claim: a contractual promise alone may be insufficient if you cannot recover the money.

On handover day, sign a record confirming the stock and asset inventory, outstanding orders, amounts paid and documents delivered. The practical takeaway: do not pay for a ‘ready-to-run’ outlet until you know what transfers to you, what remains with the seller, and how any historic liability that emerges later will be funded and settled.