Skip to 0 minutes and 9 secondsMaster franchisees, area developers, and franchisees have a clear end point for their involvement with a brand-- the date when the term of their agreement expires.

Skip to 0 minutes and 24 secondsFor unit franchisees, the agreement will last between 1 and 25 years depending on the franchise term and any rights of renewal. Most would be for significantly less than 25 years. In some countries, legislation prescribes a minimum term for franchisees. For example, in Malaysia a franchise term must not last less than five years. With the consent of the other party to their contract, master franchisees, area developers, and franchisees can sell their business any time.

Skip to 1 minute and 1 secondFranchisors, and even some master franchisees, have a broader set of options available to them. Franchisors have the rights to develop their business continuously. Those that depend on selling products, whose popularity is waning, such as cigarettes or videos, can evolve into a business selling different products. That can require franchisees to move into the new lines with them. To exit their business, the franchisor can choose to sell their company or some of the shares. Usually the franchisor does not need the consent of the franchisees to sell. The franchisor might sell to a venture capitalist. In the expert video, Rupert Barkoff talks about the consequences of the introduction of private equity into a franchise system.

Skip to 1 minute and 56 secondsThey might sell to the public by listing their franchise. It is also common for large companies to purchase a franchisors business. By doing so, they added an extra distribution network of franchisees to the company. The introduction of venture capitalists or public company shareholders to a franchise really changes the dynamic, as these new parties are motivated by profit and growth. This can put new pressures on franchisees. Ideally these buyers also understand what it takes to be a great franchisor and how to motivate the franchisees. Alternatively, the franchisor or master franchisor might decide to exit via insolvency. This can leave franchisees controlled by an administrator who will test the market to see whether a buyer can be found.

Skip to 2 minutes and 46 secondsInsolvency and franchising do not sit comfortably in the same sentence. When advising parties to an insolvent administration, transaction lawyers find they must learn a new set of skills. The readings at the end of this module explain more about franchisor insolvency.

Exit strategies

Master franchisees, area developers and franchisees have a clear end point for their involvement with a brand – the date when the term of their agreement expires.

For unit franchisees the agreement will last between one and 25 years, depending on the franchise term and any rights of renewal. Most would be for significantly less than 25 years.

In some countries, legislation prescribes a minimum term for franchisees. For example, in Malaysia a franchise term must not be shorter than five years.

With the consent of the other party to their contract, master franchisees, area developers and franchisees can sell their businesses at any time. Franchisors, and even some master franchisees, have a broader set of options available to them.

The franchisor has no specific end point to their interest in the network. To exit their business the franchisor can choose to sell their company, or some of the shares. Usually the franchisor does not need the consent of their franchisees to sell. The franchisor may sell to either a venture capitalist or to the public by listing their franchise. Alternatively, the franchisor or master franchisee might decide to exit via insolvency.

In this video Dr Buchan will go into more detail on franchisor exit strategies.

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International Franchise Law: the World is Yours

UNSW Sydney

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