How to Understand Disclosure Laws When Selling a Franchise

The average length of a franchise contract is 10 years. During this period, a franchisee may decide to sell the franchise, so it's important to know your legal rights and contractual obligations before you enter the agreement. By understanding your franchise's disclosure laws, you can determine the best course of action for getting out of your franchise agreement.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Franchise agreement
• UFOC disclosure document

1. Gather your franchise agreement, Uniform Franchise Offering Circular and other relevant materials and take them to your franchise attorney to discuss your options. If possible, do this prior to signing the contract so that you'll understand how difficult the process will be when you're legally bound to the franchise.
2. Discuss disclosure laws with your attorney so that you understand the basics of the legal proceedings. You'll want to become more familiar with buy-back agreements and right of first refusal, two very common disclosure laws that are used in franchise agreements.
3. Talk with your franchisor about the rules for franchise transfers. Some franchisors prohibit transfers of any kind; if transfers are permissible, there may be guidelines in place that restrict your ability to sell the franchise easily.
4. Be prepared for the possibility of selling. If your franchiser reserves the right to approve the buyer, the process could become extremely lengthy and frustrating. Giving yourself plenty of time to sell will ensure that you don't have to settle for a low offer.

Tips & Warnings

• Before you sign a contract, read closely to determine if the franchisor has included any buy-back or right of first refusal clauses. These clauses help protect the franchisor by limiting your ability to sell the business.
• Obtain legal advice from a franchise attorney before proceeding with the sale of your franchise. Doing so will ensure that you stay within the limits of the law and get the best possible price for the business.
• Selling your franchise can be a lengthy process. Expect to spend at least 3 to 6 months on the sale, depending on how difficult your franchisor makes the process.
• Weigh your options carefully when entering into a franchise agreement. With average contracts that run 10 years or more, you could be stuck operating your franchise and paying royalties for many more years. In many cases, the franchisor will make it very difficult for you to leave by including clauses in your contract that live little room for negotiation.