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What’s the best structure for a new franchisee business?
There probably isn’t an answer for this that is right for everyone, as it will depend very much on your personal circumstances and the structure the franchisor prefers or indeed insists on. Basically there are three options - sole trader, partnership or limited company - and if all goes well there is little to choose between them. However, at the risk of sounding negative, in my experience the one to avoid is partnership, as they are a nightmare to manage when it all goes wrong, even when there is a formal partnership agreement in place.No doubt your accountant can advise you of the pros and cons from a tax efficiency point of view, but don’t run away with the idea that if you choose a limited company format you will then be eliminating your risk of personal exposure. Even if the franchisee entity is a limited company, it is likely that the agreement will include the individual as principal or guarantor and any bank lending will require your personal guarantee and, very likely, the security of personal assets, including your home. If I had to choose, I would go for the limited company format. This can be viewed as a separate living, breathing entity with its own assets, liabilities and cash requirements, the health of which can then be relatively dispassionately reviewed. Progress against plan can be monitored and decisions taken about future development, sale or indeed euthanasia, difficult though this still is when we’re talking about your ‘baby’ and livelihood.
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