Buying a Franchise with Partners in South Africa

Buying a franchise with a partner can combine savings, experience and useful skills. It also creates a second relationship to manage alongside your relationship with the franchisor. Within South Africa’s franchising community, brand approval does not settle who controls your business or what happens when investors disagree. Before committing, agree how ownership, money and decisions will work.

1. Establish who is actually buying the franchise

People often use “partner” loosely. You might intend to trade through a company with several shareholders, rather than form a legal partnership. Those structures have different consequences for ownership, liability and decision-making. Ask a South African lawyer and accountant to recommend a structure suited to your circumstances.

Identify the proposed franchisee by its exact legal name. If a company will operate the outlet, establish whether that company will also employ staff, hold the bank account and enter into the other operating contracts. Avoid assuming that an application submitted by one person automatically authorises a company or group of investors to take over.

Ask the franchisor:

• Does approval cover every proposed shareholder, or only the lead applicant?
• Must a specified person retain a minimum ownership interest?
• Is an investor who will not work in the business acceptable?
• Does changing shareholdings require prior written consent?

Record the agreed ownership structure and obtain any required approvals before signing. A private agreement between investors cannot override restrictions in the franchise agreement.

2. Separate investment, lending and payment for work

Two buyers contributing the same amount do not necessarily expect the same return. One may want a salary for running the outlet; the other may expect distributions without taking an operational role. Resolve that distinction while everyone is still enthusiastic.

Prepare a contribution schedule showing each person’s cash contribution, payment date and proposed ownership percentage. If someone contributes equipment or other assets, agree their value, ownership and suitability for the franchise before counting them towards the investment.

Distinguish clearly between:

• Share capital: money invested in return for ownership.
• Shareholder loans: money lent to the company under agreed repayment terms.
• Remuneration: payment for actual work, documented separately from ownership returns.

Have your accountant explain the tax and cash-flow implications. Distributions by a company must also comply with the Companies Act 71 of 2008, including its applicable solvency and liquidity requirements; they are not simply withdrawals that shareholders can demand.

Agree what happens if more money is needed. Is further funding voluntary or committed? Will additional contributions be loans or new equity? What happens if one shareholder cannot contribute? Do not leave these questions to an informal promise to “split everything fairly”.

3. Put decision-making and deadlock rules in writing

A 50:50 shareholding can feel fair but leave nobody able to resolve a disagreement. Before buying, distinguish routine decisions from matters requiring both investors’ approval.

Your governance documents should address spending authority, borrowing, appointments, access to financial information and transactions involving a shareholder’s other businesses. Establish who may approve payments and how both investors can monitor the company’s finances without obstructing ordinary trading.

Ask a lawyer to prepare a shareholders’ agreement and check it against the company’s memorandum of incorporation and the Companies Act. These documents must work together: a shareholders’ agreement cannot validly override the Act or the memorandum.

Include a workable deadlock process. This might start with a formal meeting and independent mediation, followed by a carefully drafted buy-out mechanism if agreement remains impossible. Test whether either shareholder could realistically fund a buy-out rather than accepting a clause that looks balanced only on paper.

Also address death, incapacity and prolonged absence. Any proposed ownership change must remain compatible with the franchisor’s consent requirements.

4. Align the partners’ agreement with franchise protections

South Africa specifically regulates franchise agreements through the Consumer Protection Act 68 of 2008 (CPA) and its regulations. Regulation 3 requires the franchisor to provide the prescribed disclosure document at least 14 days before the franchise agreement is signed.

Section 7 requires a written franchise agreement signed by or on behalf of the franchisee, with prescribed information and plain, understandable language. Section 7(2) allows the franchisee to cancel without cost or penalty within 10 business days after signing, by giving written notice to the franchisor.

These protections do not replace an agreement between co-investors. Nor should shareholders assume that cancelling the franchise automatically cancels their separate commitments to one another.

Give your lawyer the proposed ownership structure, governance documents and franchise agreement together. Confirm who has authority to sign and whether investor promises conflict with obligations owed to the brand.

Practical takeaway: Before buying together, document who owns what, who contributes what and how disagreements will be resolved. Secure the franchisor’s required approvals and make all agreements consistent before anyone commits.