This post is all about transfers. Dictionary.com defines the word transfer as “to convey or remove from place, person, etc., to another.” This concept of transfer is commonly expanded in the franchise world, beyond the everyday meaning. Transfer, as is typically defined in a franchise agreement, is a conveyance of interest in the franchise agreement or in the franchise business entity. While seeming like a simple definition, the actual application this definition can be all encompassing. Take these examples:
- You have a great and valued employee. You set up an employee stock option to retrain the employee.
- You just got married and your new husband wants to be part of the business. You give your new spouse a 25% membership interest in the franchise business.
- You get a loan from the bank to finance some new equipment and you secure the loan with the franchise assets.
- For estate planning purposes, your attorney wants to move the ownership of the franchise business to a trust.
You guessed it. All these examples are transfers. Per the franchise agreement, transfers require the written consent of the franchisors. The key word here is written. It is not enough that the franchisor says, “Yes”. It has to be in writing! This is important, because failure to get written approval from the franchisor is a default under the franchise agreement. Without written consent, the franchise can be terminated.
In the life of a business, events occur; transfers occur. Sometimes without the parties even realizing that a transfer is taking place. When these events happen, it is important to visit the franchise agreement regularly to ensure conformity to the obligations and terms.