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Log In / Register | Jul 24, 2017

A Legal View of a Franchisor's First Sale

In the U.S., many a small business owner decides that they want to expand, and that the best way to do that is to franchise. But selling that first franchise is a major hurdle: potential buyers avoid franchisors with zero franchisees.

For a few successful business owners, the idea of franchising may come from one or more customers who love the business concept and initiate the idea of buying a franchise even before the owner has taken the first step to prepare a franchise offering. But this rarely happens.

Here’s another suggestion: If the aspiring franchisor has a successful business unit (a store or a restaurant, for example) that is operated well by a trusted manager, that manager might be a good candidate to buy the business at that location and become the company’s first franchisee. The manager already will know the business inside out, having successfully managed the business as an employee. The transaction would entail the sale of the existing business at a single location in which the buyer undertakes to continue operating as a franchisee of the seller. The buyer’s newly-formed company would sign a franchise agreement as part of the purchase of the business. — Thomas M. Pitegoff, Esq., LeClairRyan/ Lexology

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