{"id":1369,"date":"2022-01-09T23:14:00","date_gmt":"2022-01-09T23:14:00","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1369"},"modified":"2024-05-22T07:23:37","modified_gmt":"2024-05-22T06:23:37","slug":"business-structures-for-franchises","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/franchising\/business-structures-for-franchises\/","title":{"rendered":"Business Structures for Franchises"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">If you are considering operating a franchise and <a href=\"https:\/\/legalvision.co.uk\/franchising\/signing-franchise-agreement-what-should-i-know\/\">becoming a franchisee<\/a>, you will want to make sure that you know what type of business structure you will operate under your franchise contract. Getting this right is highly important because it will determine how you manage profits, liability, and tax. There are numerous business <a href=\"https:\/\/legalvision.co.uk\/franchising\/franchise-legal-structure\/\">structures for franchises<\/a>. This article will explain some of the key business structures for franchises that you will want to consider if you are buying a franchise.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What is a Franchise Agreement?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A franchise agreement is how you begin a franchise relationship. The franchise agreement might, for example, give access to the franchised business\u2019:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">business model;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">brand;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">information and data; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">access to its supply chain (in some cases).&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">As part of the franchise agreement, you will also have to pay the franchisor a franchise fee.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400\">A franchise relationship can create complications. To deal with those complications, you will want to make sure that you enter into a clear business structure where the roles and responsibilities of all parties are clearly defined. Specifically, the business structure will influence:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">how you set up the franchise, including documents and licences;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">how you raise money, by looking at credit scores and trading history;<\/span><\/li>\n\n\n\n<li>the way in which <span style=\"font-weight: 400\">the profit is shared;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">what happens if the business gets into debt; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">how much tax your franchise needs to pay.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Different Ways of Structuring a Franchise<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Franchising is primarily a way for franchisors to expand their business and its brand. Additionally, as a franchisee, you are adopting a business model and brand with proven success. The <a href=\"https:\/\/legalvision.co.uk\/franchising\/franchising-formats\/\">type of structure<\/a> you want for your franchise will depend on what is central or unique to the business, for example, a:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">product;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">brand; or<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">service.<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Direct-Unit Franchise Model<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You may want to use a direct-unit franchise model (also known as a single-unit franchise model). This is where you, as the franchisee, gain the right to operate in one location or in one branded business. Further, it is an agreement with one singular franchisor and the traditional franchise model. <\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">A direct-unit franchise model can be ideal if you are looking to enter into a franchise agreement with a certain business in a particular area. As the franchisee, you are required to invest your own money and will manage the franchise on your own (with some support from the franchisor or master franchisee).&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Multiple-Unit Franchise Model<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A multiple-unit franchise model is where the franchisee can run multiple units within the same franchise, in a specific area. The benefit of this model is that you are not reliant on the income from one single franchise. Having multiple franchises allows you to better account for any losses.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Master Franchise Model<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A master franchise relationship (otherwise known as <a href=\"https:\/\/legalvision.co.uk\/franchising\/master-franchise-agreement\/\">master franchising<\/a>) is similar to a multiple-unit franchise model. F<\/span>urther, <span style=\"font-weight: 400\">a master franchise is where a franchisee pays the franchisor to:\u00a0<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">become a \u2018master franchisee\u2019;&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">take on additional responsibilities; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">act as the franchisor in a specific region.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">A master franchisee has the role of recruiting franchisees who are looking to become part of the franchise business and assist with training and support. This type of agreement is beneficial as it allows you to take on a managerial role and utilise your experience in the industry. Additionally, you may receive a percentage of royalties from the franchisees.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Note, if you are inexperienced in management or do not wish to take on a higher workload, this may not be the best option for you.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                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A business structure will determine your personal liability for debts and define how profits are distributed.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">In some circumstances, you may not have a choice if the franchisor dictates how you are to structure your business in the franchise contract. However, if you are able to choose, there are various structures to consider.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Sole Trader<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">One business structure for your franchise could be a <a href=\"https:\/\/legalvision.co.uk\/business-structures\/operate-as-company-or-sole-trader-in-england-and-wales\/\">sole trader structure<\/a>. As a sole trader, you are responsible for preparing your financial documents, such as your annual accounts and trading history, to present to the Her Majesty Revenue and Customs (HMRC). This could be a good option for your franchise business if you can deal with the risks against your business on your own (for example, with insurance).&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">As a sole trader, you do not have to deal with as much paperwork or costs. In fact, your main obligation is to do your annual tax return. However, if your franchise business goes bankrupt, then your personal assets will be at risk.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Partnership<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">A partnership is similar to a sole trader structure. However, the key difference is that you will have another person who is your &#8216;partner&#8217; in the franchise business. This can be good for sharing the difficulties of running a franchise business such as liabilities and costs. In other words, you have shared liability rather than personal liability.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you opt for this structure, then you will want to enter into a partnership with someone who is also able to bare the cost of potential future debts. Further, you want to come to an agreement on how to divide:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">liabilities;&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">ownership; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">profit.<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Limited Company<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You can also run a <a href=\"https:\/\/legalvision.co.uk\/corporations\/limited-vs-unlimited-company\/\">limited company<\/a>. A limited company must be incorporated by registering with the &#8216;Companies House&#8217;. Running a limited company can be beneficial as your personal liability is limited to the amount of money that you invest in the business. In this way, your personal finances will be more protected. Additionally, you will have a more favourable tax position. This structure can be good for increasing the credibility of your business.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The structure of your franchise business will be highly important to manage your debts, profits, and the expansion of the franchised business. When deciding which of the business structures for franchises is best for you to use, it is recommended that you seek professional legal advice to prevent the risk of any mistakes in your contractual agreements with franchisors.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For help understanding business structures for franchises, <a href=\"https:\/\/legalvision.co.uk\/franchise-lawyers-lp\/\">LegalVision\u2019s franchise lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1641769246177\"><strong class=\"schema-faq-question\"><strong>What is a direct-unit franchise model?<\/strong><\/strong> <p class=\"schema-faq-answer\">This is where you gain the right to operate in one location or in one branded business. Further, it is an agreement with one singular franchisor.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1641769254738\"><strong class=\"schema-faq-question\"><strong>What happens if my franchise business cannot pay its debts?<\/strong><\/strong> <p class=\"schema-faq-answer\">This will depend on the structure of your franchise business. If you are operating under a sole trader model, for example, you will have personal liability for the debts of your franchise business.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1369\" \/>            <input value=\"https:\/\/legalvision.co.uk\/franchising\/business-structures-for-franchises\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Business Structures for Franchises\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you are considering operating a franchise and becoming a franchisee, you will want to make sure that you know what type of business structure you will operate under your franchise contract. Getting this right is highly important because it will determine how you manage profits, liability, and tax. There are numerous business structures for<a href=\"https:\/\/legalvision.co.uk\/franchising\/business-structures-for-franchises\/\">Continue reading <span class=\"sr-only\">&#8220;Business Structures for Franchises&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13325,"featured_media":606,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1419,1455,2195,1902,3567,999","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[33],"tags":[56,57,148,267,268,270],"class_list":["post-1369","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-franchising","tag-franchisee","tag-franchising","tag-business-structure","tag-master-franchise","tag-direct-unit-franchise","tag-multiple-unit-franchise"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Business Structures for Franchises in the UK | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Thinking of buying a franchise? 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