Buying an Existing Franchise in Taiwan: Check Franchisor Approval, Outstanding Liabilities and Completion Conditions

Buying an existing franchise outlet in Taiwan may seem to save time on setting up, but buying the business does not necessarily give you the right to operate the franchise. The seller may be willing to hand over the keys, yet the franchisor may not approve you as the new operator. Equipment on the premises may not belong to the seller either. Before joining a franchise network, break the transaction down into three parts: franchise authorisation, the purchase of assets and the assumption of liabilities. Check each separately to avoid paying for a business you cannot operate.

1. Establish whether you are buying assets or a company

First, ask the seller to specify exactly what is being sold. Do not settle for a vague description such as “the entire business”. Buying equipment, stock and shop fittings has different legal and financial consequences from buying shares in the company that operates the outlet.

If you are buying assets only, agree item by item which rights and obligations will transfer. If you are buying company shares, the legal entity generally remains the same: its existing debts, tax liabilities and employment obligations do not disappear when its shareholders change. A share purchase should be reviewed by a lawyer and an accountant in Taiwan, rather than assessed solely on whether the outlet is profitable.

Before taking over, obtain at least the following:

• The seller’s identity details, business or company registration records, and documents confirming the signatory’s authority.
• The current franchise agreement, its appendices, and any notices of breach or requirements for remedial action issued by the franchisor.
• A transfer schedule listing equipment, stock, deposits, customer prepayments and any other items being taken over separately.
• A list of outstanding payments, litigation and disputes, together with a written statement from the seller confirming whether anything has been omitted.

Check each document against the actual parties to the transaction. If the payment recipient, equipment owner and franchisee named in the franchise agreement are different people or entities, obtain an explanation and the necessary authorisations first. An assurance that “we are all connected” is not enough.

2. Obtain written franchisor approval, then check the applicable rules

Do not rely on the seller’s claim that “head office has agreed verbally” as a basis for completion. Ask the franchisor to confirm in writing whether the buyer has been accepted, whether the existing agreement will continue or a new one must be signed, when the authorisation takes effect, and whether any further franchise fees, training fees or refurbishment requirements apply. Also spell out whether the existing franchise tenure, benefits and deposits will be recognised.

Taiwan does not regulate all franchise transactions through a single, standalone franchise statute. Important rules governing franchise recruitment and business conduct are found in the Fair Trade Act and the Fair Trade Commission’s Disposal Directions (Guidelines) on the Business Practices of Franchisors. Asset sales and the transfer of contractual rights and obligations also involve general laws, including the Civil Code.

Under these guidelines, the franchisor should provide important franchise information ten days before entering into a franchise relationship or a preliminary franchise relationship, or within a period considered reasonable in the circumstances or agreed by both parties, unless there is a justified reason for not providing it. Separately, there is a pre-signing contract review period of at least five days, or a period considered reasonable in the circumstances. These two requirements should not be confused.

Taking over an existing outlet should not be treated as a reason to skip the review process. If the transaction involves establishing a new franchise relationship with the franchisor, check the relevant disclosure obligations rather than relying solely on old documents supplied by the seller. A breach of the guidelines engages Article 25 of the Fair Trade Act only where it is sufficient to affect trading order. It does not mean that the business transfer agreement is automatically invalid or that payments must automatically be refunded.

3. Verify equipment, stock and customer prepayments item by item

Prepare a completion inventory recording each piece of equipment’s name, serial number, quantity, condition, proof of ownership and any third-party rights over it. Equipment that is rented, borrowed or not yet fully paid for should not be treated as an asset the seller is free to sell. Request invoices, purchase agreements and any necessary evidence of repayment or consent to transfer.

Count stock according to the quantities that are actually usable, noting expiry dates, damage and items that cannot be returned or exchanged. The purchase price arrangements should explain how stock used or newly purchased before completion will be accounted for, so that the same stock is not charged for twice.

Prepaid packages, stored-value balances and unfulfilled orders are particularly easy to overlook. Establish the following:

• Did the seller or the franchisor collect the money, and who currently holds it?
• Who will provide the services, issue refunds or handle complaints after completion?
• If the buyer takes on the obligation to fulfil these commitments, will the corresponding funds also transfer, or will the purchase price be reduced?

An allocation of responsibility agreed between buyer and seller may not be enforceable against customers or other creditors. Separately check any consent, notification and personal data transfer requirements. A customer membership list cannot simply be handed over like ordinary stock.

4. Allocate existing liabilities and tie payment to completion conditions

Use the completion date as the cut-off point and specify who is responsible for rent, utilities, supplier invoices, staff wages and other amounts payable. Request settlement statements or proof of payment. Whether employees will stay on, and how their length of service and existing entitlements will be treated, must be checked against the actual transaction structure and Taiwanese labour law. Simply stating in the contract that “the seller is responsible for existing staff liabilities” does not resolve the issue.

Payments should be linked to verifiable conditions, not merely to the signing date. For example:

1. The franchisor has given written approval, and the franchise authorisation can take effect as agreed.
2. The lease and registration arrangements needed to operate the business have been checked.
3. Checks of equipment ownership, stock and customer prepayments have been completed.
4. Both parties have signed a completion statement setting out deductions and outstanding matters.

If some amounts remain uncertain, you can negotiate the retention of part of the purchase price. Specify what the retained funds are for, the evidence required, the settlement procedure and the conditions for release. Where necessary, use a professional third-party arrangement to hold the funds. This is a negotiating tool, not a statutory right that buyers automatically enjoy.

The contract should also state whether completion can be halted if the franchisor refuses approval, important assets cannot be transferred or the seller’s disclosures are inaccurate, and how any money already paid will be treated. Do not pay in full first and hope to recover the money later.

Practical takeaway: Before paying, have the franchisor’s written approval, an asset ownership schedule and a statement allocating and settling liabilities ready. If you cannot establish who owns an item, who approves its transfer, who pays or who bears responsibility, clarify the position before deciding whether to proceed.