Buying out your partner
William, Denver, Colo.
This question is a follow-up to "Who gets the name in a business custody battle?"
What happens when the majority shareholder wants to franchise the business, but the minority partner is against it? The minority partner is not willing to expand with her current partner. Instead, she'd like to go it alone. Does this trigger a buyout? Is that the best and only solution?
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From Patricia, Las Vegas, NV I used to work for a large franchisor. When the business is franchised, a new legal entity is set up to do this. I'm not an attorney but it seems the key is who has rights to the brand (name) and if an agreement can be reached allowing the new franchisor-entity to use the name. We used a franchise attorney, known in the industry as "Mr. Franchise" (google him) for guidance. He would know the answer to your question. You can also check the Franchise Foundations website at http://www.franchisefoundations.com for more information. Look under the "Franchising A Business" and "Articles I" pages.
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Patricia is right. It doesn't trigger a buy out (unless their is a specific buy out trigger in the bylaw, minutes, shareholder agreements, etc.) But a buy out is something to definitely consider under these circumstances.
The majority shareholder, subject to a duty of good faith and fair dealing, basically calls the shots as far as what the corporation does. Although a separate legal entity is normally set up to do the franchising, the bigger issue is where will the franchise development funding come from? And how will the two entities be related: parent-subsidiary or just affiliates.
These are just some of the issues that need careful consideration and advice from a franchise attorney. From a business perspective, it may be better for the majority shareholder to negotiate a buy out of the minority shareholder. If a large, successful franchise network develops, that will avoid "hey, I own a piece of that" type arguments down the road.
Any specific questions feel free to contact me through the Franchise Foundations website on the Franchise Attorney page.