Q&As

Can a franchisor grant a franchise to a limited company and then become a shareholder in that company?

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Published on LexisPSL on 11/10/2016

The following Commercial Q&A provides comprehensive and up to date legal information covering:

  • Can a franchisor grant a franchise to a limited company and then become a shareholder in that company?
  • Franchise restrictions
  • Other contractual documents
  • Business and trade associations
  • Competition law

Can a franchisor grant a franchise to a limited company and then become a shareholder in that company?

Franchise restrictions

We are not aware of any specific legal restrictions or laws preventing a franchisor from granting a franchise to a company in which it is also a member. Whether any restrictions apply will depend on the terms of the particular franchise agreement and any relevant franchising regulations.

If there are concerns about control of the franchise, a typical franchise agreement will often have substantial provisions to restrict a sale of the franchise business. The Lexis®Nexis franchise agreement has clauses dealing with a sale of the business, although other franchise agreement Precedents might also include restrictions on the sale of the franchisee’s shares, perhaps via the exercise of options granted to the franchisor (arising on a proposed sale of the shares by the franchisee to a third party). See Precedents and associated Drafting Notes:

  1. Franchise agreement—non-exclusive and associated Drafting Notes

  2. Franchise agreement—exclusive and associated Drafting Notes

By its very nature, a

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