- The key point: a share sale doesn't legally "assign" anything, because the corporation that signed the franchise agreement remains the same legal entity before and after the sale — only…
- From a franchisor's perspective, who actually controls and operates a location matters just as much in a share sale as it does in an asset sale — the people running day-to-day…
- Buyer and seller agree on a share purchase, often to simplify the transfer of licences, contracts, and the existing franchise relationship.
Buyers structuring a franchise purchase as a share purchase sometimes assume they can sidestep the franchisor's approval process — after all, the franchise agreement itself isn't being assigned to anyone; the corporation that holds it simply changes owners. That assumption is often wrong. Many franchise agreements include a change of control clause that treats a share sale the same way it treats a formal assignment.
Understanding how these clauses work, and why they exist independently of the assignment clause, is essential before assuming a share structure avoids franchisor involvement.
Assignment Clause vs. Change of Control Clause
These two clauses do related but different jobs in a franchise agreement.
| Assignment Clause | Change of Control Clause | |
|---|---|---|
| Triggers on | A transfer of the franchise agreement itself to a new party | A change in who owns or controls the franchisee corporation |
| Typical scenario | Asset sale, or the franchisee entity is dissolved and a new one takes over | Share sale — the corporation stays the same legal party, but its shareholders change |
| What it usually requires | Franchisor consent, often with conditions such as fees, retraining, or a new agreement | Often the same consent and conditions, even though no formal assignment occurs |
The key point: a share sale doesn't legally "assign" anything, because the corporation that signed the franchise agreement remains the same legal entity before and after the sale — only its shareholders change. But a change of control clause is drafted specifically to catch that scenario and require the franchisor's approval anyway.
Why Franchisors Draft It This Way
From a franchisor's perspective, who actually controls and operates a location matters just as much in a share sale as it does in an asset sale — the people running day-to-day operations, making decisions, and representing the brand are changing either way. A change of control clause protects the franchisor's ability to vet the new controlling owners, regardless of the corporate mechanics used to get there.
This mirrors a broader theme in Ontario business sales: a share sale changes who owns the shares, not the underlying corporation, and doesn't by itself require the kind of corporate-level shareholder approval that a sale of all or substantially all of a corporation's assets would. But contracts the corporation has signed — leases, supplier agreements, and franchise agreements among them — can still contain their own consent triggers that operate independently of that corporate law backdrop.
How This Plays Out in a Deal
- Buyer and seller agree on a share purchase, often to simplify the transfer of licences, contracts, and the existing franchise relationship.
- The franchise agreement is reviewed during due diligence, and a change of control clause is identified.
- The buyer applies for franchisor approval as if the transaction were an assignment, even though technically it's a share transfer.
- The franchisor conducts its usual review — financial capacity, experience, brand fit — and may require the buyer to sign updated terms or pay a transfer fee as a condition of consent.
- The purchase agreement should make closing conditional on this consent being obtained, just as it would in an asset deal.
What Buyers Should Check Before Assuming a Share Structure Helps
- [ ] Read the change of control clause itself, not just the assignment clause — they may impose different or additional requirements.
- [ ] Confirm how "change of control" is defined — some clauses trigger on any change in majority ownership, others on more specific thresholds.
- [ ] Ask whether the franchisor treats a share sale differently in practice from an asset sale, even if the clause reads the same on paper.
- [ ] Build franchisor consent into the purchase agreement as a closing condition regardless of deal structure.
- [ ] Don't assume a share structure avoids franchisor fees, retraining requirements, or a new agreement — check the clause's actual terms.
Frequently asked questions
Does every franchise agreement include a change of control clause?
Not necessarily, but it's common. The only way to know for certain is to read the specific franchise agreement involved in your transaction.
If there's no change of control clause, does a share sale avoid franchisor involvement entirely?
It reduces the formal trigger, but many franchisors still expect to be informed of, or consulted on, a change in ownership as a practical matter — check the agreement's other provisions, such as notice requirements, before assuming silence.
Can a franchisor refuse consent under a change of control clause the same way it could refuse an assignment?
Generally yes, if the clause gives the franchisor approval rights — the legal mechanism differs slightly, but the practical effect, franchisor sign-off required, is often the same.
Should the purchase price change if franchisor consent is uncertain?
That's a negotiation point between buyer and seller, not a legal requirement — but many deals do build in a price adjustment or holdback tied to whether consent is obtained on the terms expected.
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