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What’s the best way to formalise our business relationship?
In practice, there are a number of ways you can do this. One way is for both of you to each sign the franchise agreement in your personal capacity. This would mean you are both personally liable under the franchise agreement.A second way is for you both to set up and own the shares in a company or limited liability partnership, with the company or LLP entering into the franchise agreement instead of you doing so in your individual capacities. The advantage of this is that, except in limited circumstances, the company/LLP will be liable for the franchise, as opposed to you and your brother-in-law being liable personally. However, many franchisors will try to get around this by requiring you and/or your brother-in-law to personally guarantee the company/LLP’s obligations and liabilities, which in effect puts whoever gives the guarantee in the same position as if they had signed the franchise agreement in their personal capacity.It is also worth noting that individuals, companies and LLPs are taxed differently. Therefore, in order for you to work out which option is best you should seek advice from a lawyer or accountant.
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