I have owned a franchise for 5 years and have run into financial difficulties. Is the franchisor legally bound to buy back the franchise? Also, is the amount paid for the franchise listed as an asset. I currently owe tutors and families for UN-serviced hours (around 10,000 dollars). I have offered to "sell" the franchise back to the franchisor for less than I paid for it in order to pay my tutors existing invoices, pay out my families for unused hours, with little or no payout to me. I am considering bankruptcy if the franchisor does not agree to these terms. What are your thoughts. I currently owe around $2,000 to tutors and $6,000 to families and have no means of financing to pay this. There are no liens on the business.
Your probably out of luck unfortunately most franchise agreements say the opposite that you will lose your franchise and still be responsible for the bills you incurred if you become insolvent. Of course all depends on the documents you signed and agreed to so get a lawyer to review it for you.
Adam A StudnickiPersonal Injury LawyerScottsdale, AZ ·
First step is to review all the pertinent documentation, including franchise disclosures, marketing materials and franchise agreements you signed. It is unlikely the franchisor agreed to buy back your business in the paperwork, but there might potentially be other arguments depending on the specific circumstances. A consultation with a NJ business lawyer would make sense to learn more about your options. They will want to review the paperwork.
Good luck.
Your contract governs all this, and typically it gives you all the responsibilities and them all the rights. Likely you are stuck with the franchise but owe them for everything you still owe them for.
As for "asset" status, consult a tax accountant for your exact situation.
Matthew J. KreutzerFranchise LawyerLas Vegas, NV ·
I agree that the answer will depend on what your contract says. That said, it is exceedingly rare for a franchise contract to provide that the franchisor has an OBLIGATION to buy back the franchise from the franchisee. And I have never, ever seen a franchise agreement where the franchisor has to buy back the franchise after it has been operated for 5 years. Even if there is one, a buy back clause in that instance would give the franchisor the option, but not the obligation, to buy the business.
Unfortunately, businesses sometimes fail. The business being part of a franchise system doesn't insulate it from failure. And It is unlikely that you will be able to hold the franchisor legally accountable (through a legal action or otherwise) for the failure after you have operated the business for 5 years.
