Entrepreneurs that decide to buy and run an existing franchise receive plenty of great business benefits including name recognition, training, and support. But just like businesses that decide to take their companies and turn them into franchises, there's still no guarantee that your franchise will be successful.
In part two of our series on how to start up a franchise; we're focusing on buying into an existing franchise, like Subway or McDonald's, and owning the franchise. The Federal Trade Commission states that owners are responsible for running all aspects of the business including costs, contractual obligations, and franchisor controls. After you've invested your initial franchise fee payment, selected your franchise, reviewed the Franchise Disclosure Document, and signed the Franchise Agreement, then it's time to pick a legal structure to incorporate your franchise business.
What's the Best Entity to Form?
If you're seeking favorable tax treatment... Form an LLC. An LLC can help you separate your personal assets from those of the business and can also choose how it wants to be taxed. LLCs are treated as a "pass-through" entity with single taxation and may also be taxed as S-Corporations if they qualify.
If you're thinking about expanding to even more franchises... File your business as a Corporation. This legal structure offers liability protection, plus a formal business structure that potential investors can invest capital in and reduce potential audit risk. Franchise owners may also find it necessary to file for a DBA or Doing Business As name to ensure that their business may be conducted under the franchise name.
Why Your Franchise Needs This Legal Structure
In 2020, franchise businesses were forecasted to represent 4.5% of the U. S. GDP. With so many businesses finding lasting success, the future has never been brighter for franchises! However, if you don't incorporate or form an LLC your franchise may be subject to legal issues and unable to establish immediate credibility with consumers.
Additionally, an easy rookie mistake to avoid making is to incorporate or form an LLC in the state where your business is located rather than where the franchise is headquartered. Incorporate today! Form an LLC with the help of our experts who make it easy to file your documents so you can continue putting your heart and soul into the franchise.
