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May 2, 2011

"What Legal Issue Should I Consider When Franchising My Existing Business?", Franchise Canada

By: Jonathan ZeppJonathan Zepp

So, you have decided to franchise your business. Perhaps you have a potential franchisee waiting in the wings. You call your lawyer: Let's get those franchising documents together. Let's get going you say. Okay, we will, but let's discuss a few things first.

Who is your franchisor? It is probably not prudent to use your current operating business (we'll call it your "concept business") as your franchisor entity. You will want to insulate your concept business from the risks of your franchise business by setting up a separate entity to act as your franchisor.

While the vast majority of franchisors will choose to operate as a corporation, there are other forms of business organization which may be appropriate. With your lawyer, you can determine which form is right for you. Even though you have insulated your operating business from risk, there may be some creditors who are not satisfied with the financial wherewithal of your new franchisor entity. Bankers, landlords, major suppliers and government regulators may want assurances directly from your concept business.

You will also want to consider taxation issues. If you have the resources to invest in a tax plan, don't miss the opportunity. Even if you don't, a rudimentary consideration of tax issues will still provide benefits.

Who is your franchisee? There are a number of different franchising formats to suit different objectives; single unit franchises, multi-unit franchises, area development agreements and master franchises. Many franchise systems incorporate more than one format and your system will likely evolve as opportunities arise. There are different outlet formats. A franchised outlet can be operated by the franchisee alone or together with you in a form of joint venture. Consider your options.

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