Some people refer to franchise businesses as turnkey entrepreneurial opportunities. People who want to start and run their own businesses may find the process much more accessible and easy to manage when they buy into a franchise business opportunity offered by a successful brand.
Many popular restaurants, retail establishments and even oil change businesses are run on a franchise basis. Franchisees thinking about a specific opportunity may feel uncertain about the steps necessary to establish a successful franchise.
Do franchisees generally need to form their own business entities to operate a franchise?
Yes, franchisees create their own company
Franchisees purchase the right to use a company’s branding and to run a standalone franchise business, provided that they continue to meet all relevant standards maintained by the franchisor. Franchise agreements outline numerous expectations for franchisees, not the least of which is the creation of an outside business.
Many franchisees specifically choose to establish limited liability companies (LLCs) as a means of protecting themselves from liability and creating a distinct legal entity for business operations. Partnerships and even corporations can also be options, depending on the extent of the franchisee’s holdings and other relevant details.
The creation of an appropriate business entity is a key component of any franchise arrangement. Franchisees must ensure they follow the right steps and comply with all relevant rules to avoid a loss of protection or setbacks during the franchise negotiation and startup process.
A separate legal entity is typically necessary in the early stages of franchise negotiations. Working with a business formation attorney can help those buying into franchises minimize the risks inherent in creating a new business.
