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I’m bankrupt. Does that prevent me from becoming a franchisee?
Legally you will not be prevented from becoming a franchisee, but in practice you are unlikely to become a franchisee and operate the business successfully because of the legal restrictions on a bankrupt’s ability to trade and borrow, including: • It is a criminal offence for a bankrupt to act as a director of a company, or be involved directly or indirectly in the management of a company without the court’s permission, so you would be unable to set up a company to run the franchise and would therefore be unable to benefit from limited liability. • A bankrupt has to disclose the fact that he/she is an undischarged bankrupt to anyone giving credit of over £250 and anyone he/she trades with if they use a different name to the one under which they were made bankrupt. • Even if the franchisor is happy to grant a franchise, many banks are unlikely to lend the money that may be required to cover the costs of setting up the franchise. Another thing to bear in mind is that money earned by a bankrupt will have to go to his/her trustee in bankruptcy, unless an agreement can be reached with the trustee for the retention of some of the earnings. The relatively good news is that bankruptcy usually only lasts a year, so you may be better off waiting for a year before looking to become a franchisee.
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