Buying or selling a business...

The purchase or sale of a business is a complicated transaction that requires due consideration for all parties involved. As a buyer or seller, preparation and/or review of agreements for the transaction are critical. Due diligence, definition of rights, obligation and contingent liabilities through to the detail surrounding the treatment of tax and GST need legal counsel.

A franchisee is advised to seek independent legal advice prior to entering into a franchise agreement to ensure any decision is fully informed. There are critical areas where franchisee rights need to be clearly defined such as key responsibilities, termination and default, payment of monies, supply side relationships, territorial rights, ownership and asset rights, prior disclosure, lease obligations or rights, bank guarantees and importantly sale and assignment.

A franchise agreement is a serious contractual relationship that details the rights of both parties for years to come. In the event of a dispute the agreement is the starting point for understanding where each party stands. If the agreement is in breach of any jurisdictional codes of conduct or established case law there are often strong grounds for a franchisee to evaluate their position or obligations.

Common considerations

• Obtain advice from a solicitor with demonstrated franchise experience to avoid needless exchanges with the franchisor and additional and unnecessary legal costs
• Ensure your position as a franchisee is compliant with the Franchise Code of Conduct
• Seek legal advice on any surrounding documentation such as an offer to lease or franchise, prior representation statement or supply terms of trade
• Manage the costs associated with any legal advice as the money is better spent in the business
• Be clear on what you are purchasing with reference to territory, intellectual property and the term of your licence
• Knowing your rights under particular legislation may assist with the commercial negotiation of any commercial or retail property lease
• Be aware of any CGT, corporate structure issues, Stamp duty and GST considerations
• Understand the obligations of the franchisor and franchisee in any resale of an existing franchise and the first right of refusal
• The tangible assets such as fixtures, fitting, equipment and stock plus an estimated value of the intangible assets such as goodwill, usually determine the value of a business reflected in the contract for the sale of the business
• Understand what fees need to be paid to whom when acquiring a franchise from the franchisor or an existing franchisee
• Understand your obligations regarding intellectual property, guarantees, restrictive covenants, deferred consideration, due diligence and warranties
• Consider the transfer of liabilities for staff entitlements such as superannuation and leave in any transaction

The specialist franchise legal team at DC Strategy are available to speak directly to you about key franchise issues.

Or submit a question...