Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Full Bio →

Written by

UPDATED: Jun 19, 2018

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

When one franchise business merges with another, the franchisee’s business rights are almost always affected. It doesn’t seem fair that a franchise owner who may have once been a competitor, perhaps running another business in the same area as yours, will now be sharing a brand name with you. This kind of change can have an obvious impact on a franchisee’s business operation. Unfortunately, the franchisee doesn’t have many legal protections in this area unless such protections are included in the initial franchise agreement. The franchisor simply has more rights to the franchise than the franchisee does. The franchisee will generally not be able to put in a veto vote to keep the merger or acquisition from happening, as this option is not usually part of the contract between the franchisee and the franchisor.

Know Your Rights as a Franchisee 

The most important thing a franchisee can do is to know his or her rights before signing the franchise contract. Your contract should explicitly state what will happen in the event of a merger with, or acquisition of, another franchise. While some franchisors are willing to negotiate these types of agreements, others are not. An example of this type of franchise contract is an agreement to give the franchisee the first opportunity to purchase any franchise operation in its territory after a merger with another franchise business.

As an alternative to buying the franchise operation, the franchise contract may also include an agreement to shut down any competing unit within the franchisee’s specific territory. As a buyer, you may also be able to negotiate a contract that says that you will have the option to terminate your franchise agreement and be refunded a portion of your initial franchise fee in the event of a merger or acquisition.

There are other various types of arrangements you may be able to negotiate with the franchisor. Examples of other possible contracts include: an agreement to operate the two different trademarks in the same fashion after the merger; an agreement by the franchisor to repurchase your franchise for fair market value at the time the merger takes place; or an agreement to reduce your royalty fee to make up for any business lost due to new competition.

Get Legal Help Today

Find the right lawyer for your legal issue.

 Secured with SHA-256 Encryption

When a Franchise Business Goes Bankrupt

If the franchise business collapses or goes bankrupt, there are unfortunately not many options for the franchisee. The creditors will have rights to all of the franchisor’s assets, which include the brand or trademark rights. Since courts will have the discretion to determine the rights of creditors, the franchisee is subject to the court’s order, and may very well be out of luck.

In order to protect your rights as a franchisee, you must understand the details of your franchise agreement. Frankly, if there is a change in franchisor ownership or the franchisor collapses, you will need a lawyer.