Buying an Existing Franchise in Portugal

Buying a franchise outlet that is already trading allows you to assess its sales, team and day-to-day operations. But the deal involves more than paying the current owner and continuing to use the brand. A franchise transfer requires coordination with the franchisor and a clear understanding of exactly which rights, assets and liabilities will pass to the buyer.

1. Define what you are actually buying

Before discussing the price, clarify the structure of the transaction. Buying shares in the company that operates the outlet is not the same as acquiring the business as a going concern through a transfer known in Portugal as a trespasse, or buying only selected assets.

In a share purchase, the company remains in place, retaining its existing contracts, assets and liabilities. The buyer takes control of a company with a tax, employment and trading history they need to understand. A debt does not disappear simply because the shareholders change.

When acquiring the business as a going concern, you need to define what is being transferred: equipment, stock, contractual relationships and other elements needed to run it. Do not assume that all contracts automatically transfer with the business, or that buying assets removes all exposure to previous liabilities. Specific rules, particularly employment rules, may apply regardless of what the agreement is called.

Ask for a written description of what you are buying. It should specify what is included, what is excluded and who owns each item or holds each right. The phrase ‘ready-to-run outlet’ is no substitute for that inventory.

2. Confirm continuity with the franchisor

The seller may own the company or business without being free to transfer the right to operate under the brand. Read the current franchise agreement and check its provisions on transferring contractual rights and obligations, transferring the business and changes of control of the company.

Do not rely on the seller’s promise that the franchisor will approve the transfer. Confirm the following directly with the franchisor, in writing:

• Whether the buyer needs approval and which criteria apply.
• Whether the existing agreement will continue or a new one must be signed.
• How much time will remain on the franchise agreement after the transaction.
• Whether there are any transfer fees, training charges or costs for adapting the outlet.
• Whether any previous breaches need to be remedied.

Portugal has no specific franchise law and no statutory pre-contractual disclosure document with mandatory content specifically prescribed for franchising. The applicable rules include the Civil Code, covering freedom of contract and good faith in negotiations and performance, the rules on standard contract terms where applicable, and competition law.

Under Article 424 of the Civil Code, transferring a party’s position in a contract involving reciprocal obligations generally requires the other party’s consent. In a share purchase, by contrast, the contracting company remains the same, but a change-of-control clause may require approval. These are different situations and warrant legal review before you make any commitments.

3. Investigate the outlet’s history

A busy shop is not proof that the company is financially healthy. Carry out due diligence focused on the specific outlet, with support from an accountant and a lawyer. Cross-check the documents rather than relying solely on a summary prepared by the seller.

Request accounts, recent trial balances, relevant tax returns, bank statements and sales records. Check that turnover, receipts and reported results are consistent. Separate normal trading performance from exceptional income, and confirm whether the owner’s work is reflected in the costs: an apparently healthy profit may depend on many hours of unpaid work.

Also examine:

• Debts and commitments: suppliers, borrowing, payments owed to the franchise network and orders not yet paid for.
• Tax and social security position: up-to-date clearance certificates and information on inspections or pending proceedings; certificates are no substitute for reviewing the history.
• Staff: contracts, length of service, pay, holiday entitlements and any disputes.
• Customers: deposits, vouchers, prepaid services and unresolved complaints.
• Stock: quantities, expiry dates, condition and whether it can realistically be sold.

When a company or business is transferred, Article 285 of the Portuguese Labour Code may require the employer’s rights and obligations under employment contracts to pass to the buyer. Information and consultation duties, as well as other employee rights, must also be assessed. Do not treat the team as something you can simply exclude from the purchase.

4. Make payment conditional on completion of the transfer

Turn the findings of your review into documented conditions. The purchase agreement should identify the approvals required, the documents to be supplied, the seller’s responsibilities and what happens if the transaction cannot proceed.

Depending on the circumstances, negotiate representations and warranties covering debts and disputes, indemnity provisions and retention of part of the purchase price. These safeguards do not replace due diligence or override third-party rights, but they can help allocate risk between buyer and seller.

Plan the handover date too: take a stock count, verify account balances, hand over authorised access credentials and establish who is responsible for outstanding payments and services. Coordinate the signing of the purchase agreement with any approval or agreement required from the franchisor.

Practical takeaway: before paying for an existing franchise outlet, confirm three things: what you are buying, whether you can continue operating under the brand, and which liabilities come with the transaction.