Regulatory Considerations for Trusts That Own Franchise Rights Across Jurisdictions

When a trust holds franchise rights across borders: why trustees, beneficiaries and buyers lose sleep

Owning franchise rights through a trust can look like a clean, tax-efficient way to hold valuable brand licenses — until franchisors, regulators or tax authorities in another jurisdiction say otherwise. For business buyers, trustees and small business owners, the stakes are real: transfer constraints, inconsistent local rules, and unexpected tax consequences can materially reduce value or block a sale. Using high-profile franchise activity from Century 21 and REMAX as practical touchpoints, this 2026 guide unpacks the regulatory, contractual and tax issues you must resolve before placing franchise rights inside a trust or buying trust-owned franchise interests.

Quick takeaways — the executive summary (most important first)

• Franchisors usually restrict assignment. Most franchise agreements treat a trust holding as a change of control and require prior franchisor consent.
• Local licensing and broker rules matter, especially in real estate franchising: many jurisdictions require an individual broker of record or limit corporate ownership.
• Cross-border tax traps include permanent establishment risks, withholding, UBIT for tax-exempt trusts and S‑corporation eligibility exclusions.
• Governance and fiduciary duty require trustees to be proactive: clear powers, delegation authority and compliance protocols are essential.
• Practical action: run a merger-of-due-diligence checklist covering franchise consents, licensure, local regulatory filings, tax registrations and escrow structuring.

The 2026 context: why now matters

Late 2025 and early 2026 continued trends that directly affect trust ownership of franchise rights: increased franchisor consolidation (e.g., REMAX’s active conversions and Century 21 network changes), tighter cross-border enforcement of tax and licensing rules, and wider adoption of digital compliance tools (e‑signing, centralized disclosure platforms, and automated KYC). Regulators in multiple jurisdictions have signaled more active scrutiny of ownership structures that mask ultimate control or attempt to evade local licensure requirements.

Relevant franchise activity as a lens

Consider REMAX’s 2025 conversions in the Greater Toronto Area — adding about 1,200 agents and dozens of offices — and leadership and governance shifts at Century 21 New Millennium in recent years. These events illustrate two operational realities:

• Large franchisors are actively reconfiguring regional networks; change-of-control and affiliation shifts are frequent and often trigger contract re‑negotiation.
• Where franchises operate in regulated industries (real estate, financial services), local licensing, broker-of-record rules and corporate practice restrictions are decisive — and those rules rarely accommodate passive trust ownership without tailored arrangements.

Contractual risks: what franchise agreements will put in your path

Before you transfer or accept franchise rights into a trust, read the agreement with an eye to these clauses:

1. Assignment and change-of-control provisions — Most franchise agreements explicitly prohibit assignment without franchisor consent. A trust taking title to rights can be a deemed assignment (especially if beneficiaries or trustees exert operational control).
2. Personal services and ‘key person’ clauses — If the franchise relationship depends on specific individuals (founders, brokers, managers), substituting trustees or successor beneficiaries can breach personal services clauses.
3. Territorial and exclusivity rights — Trust ownership cannot expand or alter geographic rights; any transfer that impacts territory may require renegotiation.
4. Confidentiality and IP license limitations — Franchisors license trademarks and systems; trusts are typically licensees under strict compliance regimes and audit rights.
5. Default and cure periods — Trustees must be ready to meet notice and cure obligations in tight timelines; failure may result in termination and loss of licensed rights.

Practical contracting checklist

• Identify every clause that mentions assignment, transfer, change of control, death, divorce, bankruptcy and trust.
• Negotiate pre‑approved trust structures with the franchisor where possible (e.g., recognized family trusts, trustee qualifications, or escrow arrangements).
• Secure written consent or amendment for long-term trust ownership — get it recorded and attached to the franchise file.
• Draft trustee representations and warranties to satisfy franchisor due diligence (background checks for trustees or beneficiaries who will be active operators).

Regulatory and local compliance hurdles across jurisdictions

“Franchise rights” may look like a contract, but operating a franchise in jurisdictions around the world means complying with local licenses, registration regimes, and industry-specific rules. Key concerns include:

Licensure and professional practice rules

In the real estate context, many jurisdictions require licensed brokers or impose restrictions on corporate practice. For example:

• Some U.S. states and Canadian provinces require a licensed broker of record who is an individual — a trust cannot serve that role directly.
• Local regulators may require disclosure of ultimate beneficial owners (UBO), which can expose trust beneficiaries and trustees to public filings.

Franchise registration and disclosure laws

Certain U.S. states and international jurisdictions require franchise registration or post-disclosure filings. Trust-owned arrangements must be disclosed and sometimes pre-approved.

Employment, immigration and immigration-linked operations

If beneficiaries or trustees will work in a jurisdiction where they lack residency or work authorization, you face immigration compliance risks. These are heightened in cross-border acquisitions of brokerages (as in REMAX’s Toronto conversions) where agent rosters and personnel movement are integral.

Data privacy, AML and consumer protection

Operating a franchise implies handling consumer data and financial transactions. Trustees must ensure compliance with GDPR-like rules, national AML laws, and local consumer protection standards — especially where franchisors mandate global marketing or CRM systems that centralize data.

Actionable local compliance steps

• Map regulatory requirements by jurisdiction: licensing, UBO disclosure, franchise registration, and sector-specific rules.
• Engage local counsel for licensure audits — confirm whether the trust can hold title or whether a licensed individual must be the named operator.
• Design an operating layer: use licensed managers, local nominees where legal and compliant, or special-purpose entities controlled by the trust but meeting local rules.

Tax consequences: cross-border traps and structuring choices

Taxes are often the most consequential issue when trusts own franchise rights in multiple jurisdictions. Consider the following:

Residence, source and permanent establishment

Where income is sourced, the residence of the trust, and where the business activities are carried out determine taxing rights. A trust receiving royalties or franchising fees may create a permanent establishment in a country where significant management decisions or franchise operations are made.

Withholding taxes and double taxation

Cross-border payments (royalties, management fees) can trigger withholding at source. Beneficial ownership issues matter — some jurisdictions impose higher withholding rates when payments go to trusts that are not transparent or resident elsewhere.

Trust type matters: revocable vs. irrevocable; grantor vs. non‑grantor

In many jurisdictions, a grantor trust that’s treated as transparent for tax purposes leaves tax liability with the grantor. Irrevocable or foreign trusts may be taxed differently, and tax-exempt or charitable trusts can face Unrelated Business Income Tax (UBIT) if franchise activities are deemed unrelated trade or business.

S‑corporation eligibility and entity selection

In the U.S., S corporations cannot have most trusts as shareholders. If the franchise is operated through an S corp or could benefit from S corp taxation, a trust may disqualify the entity, causing inadvertent tax elections to fail.

Practical tax action plan

1. Model tax flows under different residency scenarios for the trust and active operations.
2. Obtain rulings or binding guidance where possible — e.g., advance pricing or beneficial ownership determinations for royalty flows.
3. Consider hybrid structures: onshore special-purpose entities for operating activities and offshore or domestic trusts for passive holding, keeping in mind substance rules.
4. Address withholding via treaty planning and ensure compliant documentation for reduced rates (tax residency certificates, forms).

Fiduciary duty and governance: what trustees must do

Trustees owe duties of loyalty, prudence and impartiality. When trusts hold franchise rights, those duties translate into specific governance responsibilities.

Core governance checklist

• Ensure the trust instrument grants explicit authority to hold, manage and assign franchise rights; if not, amend before acquisition.
• Draft express powers to comply with franchisor requirements: ability to enter into amendments, provide guaranties, agree to audits and accept operational oversight.
• Appoint qualified delegated managers or professional trustees with sector experience (real estate broker licensing, franchising operations).
• Implement regular reporting to beneficiaries: KPIs, compliance certifications, financial statements and tax positions.
• Adopt conflict-of-interest protocols when beneficiaries are also franchise managers or local operators.

Insurance, indemnities and loss mitigation

Trusts should carry appropriate commercial liability, E&O (errors & omissions) and franchise-specific insurance. Contractually negotiate indemnities with franchisors where possible and maintain escrow reserves for post‑closing warranty claims.

Practical acquisition and disposition playbook (buyer & trustee focused)

Whether you’re buying trust-owned franchise rights or you’re a trustee planning to transfer them, follow this step-by-step playbook:

1. Pre‑deal mapping — Inventory all franchise agreements, identify assignment clauses, list licensed people and entities, and capture local regulatory registrations.
2. Regulatory clearance — Engage local counsel in each operating jurisdiction to confirm licensure, UBO filing requirements and whether the trust is a permissible holder.
3. Franchisor engagement — Open early dialogue with the franchisor. Seek a written consent, amendment, or a pre-approved trust form to avoid later disputes.
4. Tax due diligence — Model tax outcomes, identify withholding and permanent establishment risks, and structure payments to optimize treaty relief and minimize UBIT exposure.
5. Governance and documentation — Amend trust instrument as needed, create operating agreements with delegated managers, and set up compliance reporting schedules.
6. Transaction mechanics — Use escrow to hold proceeds pending franchisor consent and regulatory clearances; prepare novation or license assignment documents tailored to jurisdictional requirements.
7. Closing checklist — Confirm all local registrations, deliver tax residency documents, update franchisor registries and record UBO filings.

Examples and lessons from recent franchise moves

Two practical lessons emerge from REMAX and Century 21 activity:

• When REMAX converted large brokerages in Toronto, continuity of licensed brokers and local leadership was the practical lynchpin — not merely the trademark license. Any trust structure would have needed to preserve licensed management roles to comply with provincial rules.
• Leadership and governance shifts at Century 21 New Millennium emphasize controlling parties and board roles: whomever sits in governance positions can influence franchisor relationships. Trustees should ensure their governance layer aligns with franchisor expectations and maintains the operational continuity franchisors expect.

2026 and beyond: future-facing strategies

Expect further tightening of cross-border compliance and more complex franchisor controls through digital platforms. Two trends to watch and adopt:

• Digital disclosure ecosystems: Franchisors are standardizing disclosure and consent workflows. Trustees should be ready to operate within franchisee portals and provide digital KYC/UBO documentation.
• Substance over form: Tax and regulatory authorities increasingly look at substance — who makes decisions, where management occurs and where value is created. Structuring should focus on operational reality, not just legal title.

Checklist: Immediate actions for trustees and buyers (start here)

• Pull all franchise agreements and flag assignment/change-of-control language.
• Obtain franchisor consent in writing for trust ownership; if impossible, negotiate an alternative operating arrangement.
• Run jurisdictional licensure checks; confirm if licensed individuals must hold certain roles.
• Perform tax modeling for each country/region where the franchise operates.
• Amend the trust to add explicit franchise powers, compliance authority, and delegation provisions.
• Set up compliance dashboards and regular reporting to beneficiaries.
• Secure insurance and escrow arrangements to protect against post-closing enforcement or indemnity claims.

Final considerations: balancing flexibility, risk and fiduciary duty

Trust-based ownership of franchise rights can deliver long-term estate planning, confidentiality and centralized management benefits — but only with rigorous upfront planning. Trustees must balance the fiduciary duty to preserve value against contractual obligations and regulatory compliance across jurisdictions. Ignoring assignment clauses, local licensing rules or tax implications risks losing rights, triggering penalties, or exposing trustees to liability.

Bottom line: don’t assume a trust will be treated as a benign legal wrapper. Treat it as an operational participant that must be approved, licensed and taxed like any other franchisee.

Need a practical next step? Use this starter template

Below is a skeleton clause you can adapt with counsel to give trustees the power to manage franchise rights (language should be tailored by local counsel):

Sample trust power (illustrative only):
The Trustee shall have full power and authority to acquire, hold, encumber, operate, lease, assign or consent to the assignment of any franchise, trademark, trade name or license agreement on behalf of the Trust, including executing amendments, providing guaranties, and submitting disclosures required by any franchisor or regulatory authority, provided that the Trustee shall not voluntarily assign or transfer any such franchise or license without prior written consent of the Beneficiaries and, where required, the franchisor.

Call to action

If your trust holds (or plans to acquire) franchise rights across jurisdictions, start with a targeted audit: pull every franchise agreement, map each operating jurisdiction and run an immediate licensure and tax impact assessment. Our specialized trustees.online advisory team helps buyers, trustees and sellers run a fast, prioritized compliance & tax playbook tailored to real estate franchises like Century 21 and REMAX. Contact us for a 30-minute intake and receive a customized transfer-risk checklist you can use with counsel and franchisors.

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