Our Case Study
We advised a client who acquired a studio portrait photography business which was part of a high-profile and successful national franchise (Business). For more information on franchises, see below.
Our client set up a limited liability company (Company) to acquire the Business and the deal was structured as an asset purchase.
There are two means of acquiring a business: via a share purchase or an asset purchase. A share purchase is where the buyer purchases the shares in a company from the company’s shareholders. If shares in a company are purchased the buyer acquires the company (and its business) as a whole, including all its assets, liabilities and obligations (even those the buyer may not have known about!). Share purchases are popular and are more tax efficient for the sellers.
However, in an asset purchase, the buyer purchases the assets that make up a business from the company itself. Asset purchases sound simple and are usually less risky: the buyer gets to cherry-pick the assets it wants.
Under the terms of the asset purchase agreement (Agreement), the Company acquired:
Unlike a share purchase, in an asset purchase, not all of a business’s contracts transfer automatically (other than employment contracts as part of a relevant transfer under TUPE) so extra agreements and consents are often required (see below). The Business was carried on at a studio leased by the seller but the lease was not capable of being transferred to the Company so the existing lease was terminated and the Company entered into a new lease of the premises with the landlord. In addition, the original franchise agreement under which the Business was carried on could not be transferred to the Company due to a change of control clause within the franchise agreement so this was terminated and our client and the Company entered into a new franchise agreement with the franchisor. The Business could not have continued without the franchise agreement; find out more about franchises below.
What is a Franchise?
A franchise is the right to use a brand and other intellectual property to sell goods and/or services. The franchisor is the brand owner and the franchisee is the person (usually a company) to whom the right is granted.
The emergence of franchises began with tied house agreements between breweries and landlords and dealership agreements between vehicle manufacturers and car dealers. Modern day franchises include McDonald’s, Subway, Burger King, Europcar, Bennetton and Best Western and as far as the general public is concerned, the franchisee is the franchisor.
What are the advantages and disadvantages of a franchise? For the Franchisor…. ADVANTAGES
And for the Franchisee… ADVANTAGES