Buying an Existing Franchise: How to Arrange a Change of Ownership

An operating outlet under a well-known brand may look safer than starting from scratch: it already has equipment, staff and customers. But buying the business and securing the right to operate under the franchise are separate legal matters. In the Russian franchise market, the seller’s agreement does not mean the rights holder has agreed too. Before paying a deposit, establish exactly what you are buying, which obligations will remain and on what terms the brand will continue the relationship.

1. Establish what is being sold: assets or a stake in the company

An advertisement for an ‘existing franchise for sale’ can cover several different types of transaction. The structure determines what the buyer acquires and which risks remain within the business.

An asset purchase means buying specific property: equipment, furniture, stock and other agreed items. The franchise agreement, lease and employment relationships do not automatically transfer along with the coffee machine or sales counter. You will need to arrange the necessary rights and contractual relationships separately to continue trading.

Buying a stake in an OOO, a Russian limited liability company, changes the company’s ownership, but the legal entity itself remains the same. Its contracts and obligations generally remain in place. Alongside the operating business, the buyer takes on the economic risk of historic debts, tax claims and outstanding obligations to customers. The franchise terms may also require notification of changes in shareholders or approval of a change of control, so these provisions need separate review.

Ask the seller to prepare a schedule of everything included in the sale, identifying the owner of each asset. Equipment may belong to a leasing company, the premises to a landlord, and a branded sign is not evidence that the seller has the right to transfer use of the brand. If the business is run by an individual entrepreneur, known in Russia as an IP, you cannot buy a ‘stake in the IP’: a different structure will be needed to acquire the assets and put the contracts in place.

2. Obtain the franchisor’s decision before making non-refundable payments

In Russia, commercial concession arrangements — the legal framework commonly used for franchising — are governed by Chapter 54 of the Russian Civil Code. Under Article 1027, the rights holder grants the user a package of exclusive rights, including the right to use a trade mark. The parties to such an agreement must be commercial organisations or individual entrepreneurs.

When buying an operating outlet, you need to agree with the rights holder on the legal route for continuing the business. Options include:

• a new commercial concession agreement with the buyer and an agreed termination of the relationship with the previous franchisee;
• transfer of the existing agreement to the new franchisee in accordance with the rules on assignment of claims and transfer of debt;
• retention of the agreement by the same OOO following the purchase of a stake, subject to compliance with any contractual change-of-control requirements.

Transfer of a contract is also governed by Article 392.3 of the Russian Civil Code. Because it includes the transfer of obligations, you should not assume that the seller can simply substitute the buyer for themselves: transferring a debt requires the creditor’s consent.

Article 1028 of the Russian Civil Code requires a commercial concession agreement to be in writing. The grant of the right to use the package of exclusive rights must be registered with Rospatent, Russia’s intellectual property authority; without registration, the grant is deemed not to have taken effect. Establish in advance which registration steps your chosen transaction structure will require.

Obtain written confirmation of the terms from an authorised representative of the rights holder. This should record approval of the proposed new franchisee, the legal arrangements, the term, payments and any requirement to refurbish or upgrade the outlet. The seller’s assurance that ‘the brand will definitely agree’ is no substitute.

3. Calculate the specific costs of taking over the business

The advertised price rarely reflects the full cost of a change of ownership. In addition to paying for the assets and goodwill of the operating outlet, the buyer may need funds to formalise the relationship with the brand, complete training, replace equipment and replenish working capital. These costs do not arise automatically by law: establish which are actually required under the agreed documents.

Prepare a separate takeover budget covering:

• the amount payable to the seller, broken down by the items being acquired;
• any entry or transfer fees payable to the rights holder, where applicable;
• registration, legal support and stocktaking costs;
• mandatory work required before trading can continue;
• a reserve for interruptions to sales and settling customer obligations.

Pay particular attention to advance payments, gift vouchers, prepaid memberships or service packages, and outstanding orders. When you buy a stake in a company, its obligations to customers remain in place. In an asset purchase, you need to establish separately who will fulfil existing orders and the legal basis on which the buyer assumes any related obligations.

Check the seller’s figures against the accounting records and supporting documents. Distinguish between the outlet’s verified turnover and promises that it will remain unchanged after the sale: the departure of a manager or key staff could affect performance.

4. Link payments to readiness for the handover

It is safer to agree a coordinated sequence for the transaction than to sign several unconnected contracts at once. Draw up a joint plan with the seller and franchisor: which documents will be signed, which consents are needed, who will submit applications and when the buyer can lawfully begin trading.

Set out the conditions for the main payments in the purchase agreement, along with the consequences if the rights holder refuses approval. Discuss staged payments or a suitable bank payment arrangement with your lawyer. The conditions for releasing funds should be verifiable through documents, rather than a vague statement that ‘everything is ready to trade’.

On the handover date, sign a handover record documenting the assets and their condition, stock levels, outstanding orders and documents delivered. Separately agree how responsibility for transactions before and after that date will be allocated. Check that the lease terms, employment arrangements and necessary permits allow the particular buyer to continue operating.

Practical takeaway: buy an existing outlet only once three elements have been agreed: what the business purchase includes, the legal basis for continuing to trade under the brand, and the payment arrangements. Until all three are documented, a branded sign does not mean you have a franchise ready to operate.