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I’m a bankrupt. Does that prevent me purchasing a franchise?
There is nothing in principle from preventing an undischarged bankrupt from purchasing a franchise. A bankrupt can own assets and operate a business. However, there are certain things that an undischarged bankrupt cannot do. An undischarged bankrupt cannot be a director or a shadow director of a company. A shadow director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. It may be difficult for an undischarged bankrupt who is going to be involved in the management or operation of a franchise to run that franchise through a company, as he may not be able to avoid being considered a shadow director. A bankrupt cannot get credit for more than £250. Therefore, an important question is how would the bankrupt intend to fund the purchase of the franchise? It would not be possible for the undischarged bankrupt to borrow funds from a bank or other credit provider, although a loan could be obtained by a business partner or spouse. Also, it should be noted that whilst a franchisee is undischarged and for a certain period afterwards the franchisee’s trustee in bankruptcy will be able to review the bankrupt’s earnings and may decide to take some of his income. It will be important to disclose to the franchisor that you are an undischarged bankrupt. Most franchisors will carry out checks in any event.
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