Different Franchise Ownership Structures

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There are various legal structures you can consider for buying a franchise and protecting your assets. Here are some common options to discuss with your accountant and solicitor:

1. Company Structure (Proprietary Limited Company):

Pros: Limited liability, separate legal entity, and potential tax benefits.

Cons: Compliance requirements and regulatory obligations.

Tip: Most franchisors will not allow you use a name for your company that infringes their intellectual property (IP) eg Janes Pilates Pty Ltd. It is for this reason, and best to avoid additional expenses to pick a company name that does not infringe IP and get permission from the franchisor to trade as their brand and location eg Jane Jones Pty Ltd t/a Pilates Melbourne. This also applies to all the below structures.

2. Trust Structure (Discretionary Trust or Unit Trust):

Pros: Asset protection, flexibility in income distribution, and potential tax advantages.

Cons: Administrative complexity and specific compliance requirements.

Tip: Make sure your Trust Deed allows you to own a franchise in the Trust. The franchisor will require the Trust Deed to review this clause before drawing up the franchise agreement.

3. Partnership Structure (General or Limited Partnership):

Pros: Shared responsibilities and potential tax advantages.

Cons: Unlimited liability in a general partnership, and compliance obligations.

4. Franchise Holding Company:

Pros: Separates franchise assets from personal assets, providing an additional layer of protection.

Cons: Requires careful structuring and compliance with Australian corporate laws.

5. Sole Trader/Individual:

Pros: Simplicity and full control over the business.

Cons: Unlimited personal liability and potential difficulty in raising capital.

6. Family Trust:

Pros: Asset protection, potential tax advantages, and flexible distribution of income among family members.

Cons: Complexity in establishing and managing, compliance requirements.

Tip: Make sure your Trust Deed allows you to own a franchise in the Trust. The franchisor will require the Trust Deed to review this clause before drawing up the franchise agreement.

7. Hybrid Structures:

Pros: Combining elements of different structures for customized solutions.

Cons: Complexity and potential legal challenges if not structured correctly.

Before choosing a specific structure, it’s essential to consult with legal and financial professionals familiar with business and franchise laws. They can guide you through the legal and regulatory requirements, helping you make an informed decision based on your business goals and circumstances. Additionally, franchise agreements may have specific requirements regarding the legal structure of franchisees, so it’s crucial to consider those as well.

Any questions about this reach out to our team.

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