Starting a small business by buying into a franchise (or a "distributorship," which is essentially the same thing) is very popular. Instead of starting your business from scratch, you get goods, services, and a business name that the general public already recognizes and buys. But, for a variety of reasons, sometimes an entrepreneur wants out of the franchise business.
If the term of your franchise agreement is about to expire, then you really don't have a problem: just let it expire, don't exercise an option to renew, and your relationship with the franchisor will come to an end. But, what if you want out of the agreement early? Basically, your only option is to assign or transfer your franchise to someone else. And, sometimes, that's not so easy.
In a nutshell, when you buy a franchise, you pay a franchise fee to the owner (called the "franchisor") of some product, service, or way of doing something. In exchange, you (the "franchisee") get access to the product, service or system, the right to use the franchisor's name, and usually some help from the franchisor, like training materials.
Practically every aspect of your relationship with the franchisor is covered by the franchise agreement signed by you and the franchisor, including if and how you can assign or transfer the franchise.
What's an assignment? It's when someone else (the assignee) takes over your rights and responsibilities under the franchise agreement. Essentially, the assignee steps into your shoes as to the agreement. You can still run a business, but not that franchise. For example, say you bought a restaurant franchise. If you assign the agreement, you can still operate a restaurant, but not that franchise.
Other than the franchise agreement itself, many states have laws that govern if, when, and how any contract can be assigned. So, before you try to make an assignment, be certain to read your contract carefully and check the laws in your area, or get some help from an experienced business law attorney.
Although it's unlikely, it's possible that your franchise agreement specifically states that you can't assign it. Typically, these clauses are not favored by the courts because, in most states, a franchise is treated as a piece of property, and the law, in general, supports an individual's right to dispose of his or property in any way he or she likes.
More often than not, your franchise agreement will allow you to assign the franchise if and when certain conditions are met. These conditions, of course, are generally for the benefit of the franchisor, and they can vary significantly depending on the type of franchise and the individual franchisor. In general, however, such conditions typically include things like:
Typically, if you want to sell your franchise business, many of the same terms and conditions will apply. But, there's often an additional provision that: