Did you know that a new franchised business opens every eight minutes of every business day? From pizzerias to gyms and tutoring centers, if your business has incredible products or services to offer it's a smart idea to spin it off into a franchise. Entrepreneurs that start up their own franchises must have a business concept that's easy to teach and duplicate, a desire to work hard, and a thick skin for navigating potential regulatory obstacles along the way. The same goes for anyone purchasing a franchise. In part one of our two-part series on how to start up a franchise; we're focusing on turning your existing business into its own franchise. Regardless of whether you buy into a recognizable brand name franchise or start up your own, it is still an expensive enterprise that is not immune to risk. But fortune favors the bold and if you have a unique product or service that has proven to be popular with customers, 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 flexibility and want to run the franchise with a few members... Form an LLC. You can easily protect your personal assets from those of the franchise with liability protection and establish credibility with customers. An LLC also gives you the ability to choose between an S-Corporation and C-Corporation for your tax entity. Keep in mind what the laws in your state look like concerning franchise tax. Let's use the state of California, for example. LLCs that are not classified as Corporations but do business in this state must file Form 568, Limited Liability Company Return of Income, and pay the annual minimum franchise tax of $800.
If you're aiming to create a franchise on the same level as McDonald's... it might be best to incorporate your business instead. 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 Protection
Statistics in 2015 showed that in the U.S. alone, franchising accounts for 21 million jobs and contributes $2.3 trillion to the economy. 1 out of 12 businesses are also a franchise. From employees to customers, countless millions depend on franchises for work and goods and services. However, if you don't incorporate or form an LLC, you may be subject to legal issues later on and unable to establish immediate credibility with consumers that you might have had if you had legitimized your soon-to-be franchise from the start. Don't delay this process! 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.
