Franchise LLC

Forming a Franchise LLC: Your Complete Guide to Key Considerations, Steps, Tips & Advice

By LLC Attorney Team
Jul 05, 2024

Forming an LLC for a franchise can provide important protections and benefits. Let’s explore what you want to consider when owning your business. With us, everything is stress free!

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Is Forming an LLC for a Franchise a Good Idea?

An LLC is a limited liability company. It’s a business structure that helps protect your personal assets by creating a legal entity. This separates your company from you. In the unfortunate event someone sues your company, your home, cars, and other personal assets aren’t at risk.

Do You Need to Form a Franchise LLC?

It depends. Many franchisors require franchisees to form a separate legal entity. In forming an LLC, you fulfill your franchise agreement. Even if it’s not required, forming an LLC comes with benefits such as limited liability protection, tax status flexibility, and enhanced credibility. You gain protection from franchisor liabilities and location-specific risk management.

Plus, we make it easy to do!

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Benefits of Forming an LLC for Your Franchise

Reduce Your Personal Risk

If someone sues your company, your personal assets are not at risk. Limited liability protects you against employee customer issues, contractual obligations and even the franchisor.

Tax Status Flexibility

Tax flexibility is great for growing businesses. While an LLC’s default tax status is known as a “pass-through,” you can also choose to be taxed as a corporation. You can choose what works for your business.

Increased Credibility

Without an LLC, you may not be viewed as a credible business. Credibility helps you attract lenders and investors, improves vendor and supplier relationships, and boost your franchise’s reputation.

Location-Specific Risk Management

For multi-unit franchisees, each location can be set up as a separate LLC. If one location faces a lawsuit or financial trouble, the other locations are protected.

Simplified Management Structure

The ownership structure of an LLC makes it easier to accommodate different investment levels or roles among owners or partners. Click Start My Business to get started!

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Forming an LLC for Your Franchise Business

Our 5-minute process makes it quick and easy.

  • Click Start My Business to register your LLC.
    We can handle every part of your LLC formation:
    • Business structure designation
    • Registered agent services
    • Operating agreement creation
    • File Beneficial Ownership Information (BOI)
    • Employer Identification Number (EIN)
    • Opt in to open your business bank account with Relay Bank
    We file within 24 hours! Seriously.

    We get you up and running as quickly and as easily as possible, so you can start turning your business ownership dream into reality. See how it works.
  • Get required licenses. Many regulations depend on your business operations.
  • Meet your local compliance requirements while you’re in business. Don’t worry! We specialize in helping you stay compliant.
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How to Start a Franchise LLC: What to Consider

A franchise can be a great way to own your own business. They have some unique considerations, and we’re here to walk you through them.

Research the Market

Looking at your market will help you know if there’s a need for the franchise you’re interested in purchasing. First, you want to know which franchises already exist. Next, look at the community. A comprehensive demographic analysis using census data and local government resources can tell you what kind of franchises might do best.

Consider implementing consumer surveys or focus groups to gauge local interest in the franchise's offerings. Research industry trends at both national and local levels using trade publications and market research reports. Look at social media and use online tools like Google Trends to assess local interest.

Franchisors will also have market research data to help you decide. Generally, they won’t let you buy a franchise unless they think you can be successful.

Choose Your Franchise

When you want to own a franchise, you'll first want to look at your costs. Understanding all the fees is crucial. This includes the initial franchise fee, ongoing royalties, and other expenses like equipment or inventory. Ensure you have enough money saved up or can get a loan to cover these costs.

Next, think about the brand's reputation. A well-known franchise with a good track record can give you a head start in attracting customers. However, a newer franchise might offer more room for growth. Research the franchise's history and talk to current franchise owners to get a feel for how successful the business is.

Consider your skills and interests. Choose a franchise that matches what you're good at and enjoy doing. This will make running the business more enjoyable and increase your chances of success. For example, if you love working with kids, a tutoring franchise might be a good fit.

Think about where you want to open your business and if that location will support the franchise you're interested in. Also, check if the franchise offers exclusive territory rights to protect you from competition.

Support from the franchisor is crucial. Look for a franchise that provides thorough training, ongoing support, and marketing assistance. This can help you get started on the right foot and keep your business running smoothly.

Lastly, carefully review the franchise agreement. This legal document outlines your rights and responsibilities as a franchise owner. Having a lawyer look it over to ensure you understand everything before signing is a good idea.

Decide on a Structure

Some franchisors may specify a particular business structure in their agreement. Check if there are any mandatory requirements you need to follow.

If you’re the only one in your business, a franchise could operate as a sole proprietorship. It’s not the safest structure to choose, however.

The advantage of an LLC is that it separates you from your business and helps protect your personal assets if you’re sued. Forming an LLC also lets you leverage virtual offices and keep your personal information private. It also helps protect you from any troubles the franchisor faces. Registering your business as an LLC comes with numerous benefits and zero downsides.

Depending on your goals, you may want to register as a corporation. This business structure best supports outside funding and growth at the highest levels. Complex structures to maintain, corporations offer valuable advantages. If this better meets your vision, we can help!

Need help? Use our tool to determine the right business structure for you. Launch Interactive Tool

Write a Business Plan

Writing a business plan for a franchise is slightly different than writing one for a standard business. Your plan must include detailed information about the franchisor, their history, and track record. Many franchises have strict operational procedures and territory restrictions that you'll need to outline in your plan. It's also important to describe the support services you'll receive from the franchisor, such as training and marketing assistance.

Like a standard business plan, yours will include:

  • Executive summary
  • Company description
  • Market analysis
  • Organization and management
  • Products and services
  • Marketing and sales strategy
  • Funding needs and requests
  • Financial plan and projections (include initial all franchise-required fees)
  • Franchise-specific information

In general, a franchise business plan tends to be more specific and constrained. You have less flexibility to innovate, as your plan must align closely with the franchisor's established model.

Manage the Franchisor Relationship

Every franchise is unique, but they all require a strong, proactive relationship with your franchisor's support team. One of the reasons people choose to buy a franchise is for this support. Using it will be the difference between success and failure.

One way to approach the support team is to identify key contacts for different areas (e.g., operations, marketing, supply chain). Form relationships with these experts when possible.

Scheduling regular check-ins helps ensure you stay on target to meet your Key Performance Indicators (KPIs). These meetings let you discuss challenges and opportunities. You get to ask specific questions and data-driven insights from your business.

If there are conferences, attending can give you insights into the company’s future plans. All business comes down to relationships. In this case, you want to leverage their expertise and resources as effectively as possible.

Get Involved in Your Community

Every community has its own nuances. Getting active and putting your name out there helps promote your business. Sponsor local teams, support charities, and use local vendors when possible. Offer internships, mentorship programs, or workshops for local students or aspiring entrepreneurs.

Remember to align your efforts with your franchise agreement and brand guidelines. Joining your community can significantly enhance your local reputation and solidify customer loyalty.

Leverage Marketing Support

While many franchises have strict branding guidelines, marketing often offers opportunities for innovations. Look for opportunities to get your business involved (this is where your community involvement comes in). You can hold events at your brick-and-mortar location and participate in sponsorships like golf outings or school functions. Use the franchise marketing support to promote these events through social media and email. If there’s an advertising budget, decide how to best spend it throughout the year. Account for seasonality shifts in your plans.

Email marketing can be the key driver for customer retention. If your franchise doesn’t include this in your package, you may want to look into doing it yourself. Sending out coupons and event notices is turnkey through email. It also helps you stay top-of-mind with your customers.

Develop a Public Relations Plan

One of the best assets a franchise has to offer is brand awareness. People often already know who you are. Sending press releases to your local media can be a great way to generate excitement before you even open.

If it’s a new franchise that hasn’t yet garnered mass awareness, public relations is a good way to introduce it to the community. Public relations differs from advertising in that it’s considered free media exposure.

As you get active in your community, inform the media when possible.

Create a Growth Plan

Develop a plan to maximize your franchise's value through growth. Depending on the franchise type you buy, you may be able to own multiple units. For instance, if it’s a cleaning company or restaurant and you’ve found success in one community, you may want to open one in a neighboring city.

Outlining a strategy for multi-unit expansion from the very beginning (in your business plan) can help make it happen. This includes identifying potential locations, understanding territory rights, and creating a financial roadmap for growth. Many franchisors also like to have multi-unit operators, so this forward-thinking approach can benefit your relationship.

Define an Exit Strategy

While few people want to think about leaving a business they just started, defining your exit strategy has its benefits. This kind of long-term planning can help you factor in the unique elements of franchise ownership that don't apply to independent businesses.

First and foremost, understand your franchise agreement's terms regarding the transfer of ownership. Many franchisors have specific clauses about selling or transferring your franchise. These may include rights of first refusal, where the franchisor has the first opportunity to buy back your franchise, or approval rights over potential buyers. You definitely want to plan something without knowing if it’s possible.

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LLC Attorney Team
LLC Attorney Team

Welcome to LLC Attorney, where our mission is to make the process of forming and maintaining your LLC as smooth and stress-free as possible. Our team is a dedicated group of professionals with a shared passion for helping businesses thrive.

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