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What legal forms can a franchise take?
Running a franchise as a sole trader is the simplest method. The benefits of being a sole trader are that registration requirements are minimised: you don’t need to register with Companies House and you don’t have any reporting obligations, other than making an annual tax return to HMRC. However, you will be personally liable to the franchisor to fulfil the franchisee’s obligations under the franchise agreement, and your own assets are at risk if you fail to pay any of the fees due or creditors of the franchise business. Alternatively, you may decide to set up a limited liability company so that the finances of the franchise are kept separate from your own. You will need to incorporate the company at Companies House. If you operate as a corporate franchisee, the franchisor will probably require a personal guarantee from one or more of the directors and shareholders of the company. If you choose to operate the franchise as a partnership, all partners will need to be parties to the franchise agreement. Each partner will be individually and jointly liable for the franchisee’s obligations under the agreement and to any creditors. Another option is to set up a limited liability partnership. An LLP is very similar to a limited company as each member shares in the risks, costs, responsibilities and profits of the business. Partners’ liability is limited to the amount of money they have invested in the business and to any personal guarantees given in order to raise finance. LLPs must be registered at Companies House and have similar filing requirements to limited companies.
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Companies to Consider
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