The right of the franchisor to sell its franchise organization to a

Following on from the article previously published in this series concerning the right of a franchisor to transfer his franchise organization to a third party, this will be further elaborated in the article below.

In practice, it often happens that a franchisor wishes to sell/transfer his franchise organization – often a part of a larger organization of the franchisor in question, which also includes other activities – for reasons of his own. As already outlined in the first article with regard to this subject, it is then of the utmost importance that this is done in joint consultation with the franchisees, whether or not they are represented in a franchise council / franchise association. After all, the success of a transfer to a third party of the organization largely depends on the contracting party of the franchisor, the franchisees. If these franchisees do not have confidence in a takeover candidate, it is wise for the franchisor to take this into account.

In practice, a transfer often means that the franchise organization is transferred to an already existing market party that often already operates in the same sector, but does not yet have a franchise organization and therefore wishes to expand its business operations in this way. It may also be the case that an existing franchise organization, whether or not operating in the same market as the franchise organization to be transferred, takes over the organization. In addition, a development can be observed in which the franchisees themselves take over the organization and thus become “their own franchisor”. Such a takeover by the franchisees themselves occurs in particular in situations where franchisees are en masse dissatisfied with the franchisor, or the franchise organization goes bankrupt or ceases its activities. If this is the case, it is of the utmost importance that the new franchise organization is organized in such a way that it is permissible under competition law. In short, this means that the organization must be sufficiently vertical. This will be discussed in more detail in a subsequent article. Finally, it should be noted that in all situations outlined above it is of the utmost importance that the succeeding party has sufficient knowledge of the market in which the franchise organization operates, as well as sufficient insight into the nature of cooperation on a franchise basis.

Ludwig & Van Dam franchise attorneys, franchise legal advice