Skip to content

How Should I Set Up My Corporate Structure As a Franchise?

If you wish to convert your corporate business into a franchise, you should first consider your current business structure before signing a franchise agreement. Often, businesses will need to undergo some restructuring to allow them to flourish as a franchise.

This article outlines the advantages and disadvantages of different franchise business structures to help you decide the best structure for your franchise system.

Front page of publication
The Ultimate Guide to Setting Up a Franchise

Making the decision to franchise your business can be difficult. This Franchisor Toolkit covers all the essential topics you need to know about franchising your business.

This Toolkit also contains case studies from leading franchisors including leading Australian franchises including Just Cuts, FlipOut and Fibonacci Coffee.

Download Now

Single Company

A single company franchise is where you set up a proprietary limited company to operate as the franchise. In this sense, the company operates as a separate legal entity that owns its assets and incurs its own liabilities.


Advantages

One of the main advantages of this structure is that it is relatively easy to operate. In addition, for a single company franchise, you will generally have a single set of accounts and regulatory requirements to meet.

Furthermore, running a single company franchise can help protect your personal assets as a business owner. 

Disadvantages

However, one of the main disadvantages of this structure is that if your franchise business faces financial difficulties, you risk losing the business’ valuable assets and intellectual property. For example, if you need to wind up the company, you could lose all of the business’ assets. If this occurs, you will not be able to use the assets in other ways.

Under this structure, there are ways to protect your business’ valuable assets. For instance, you can become the owner of the business’s intellectual property (IP). In this case, you can license the franchise’s IP to franchisees. Consequently, these more valuable assets would not be at risk if your company fails.

Two-Tiered Company

Some business owners set up a two-tiered company structure to operate their franchise. A two-tiered company structure generally consists of a holding company and an operating company.

The holding company owns the business’s assets and intellectual property, while the subsidiary company is the operating company. The holding company then owns 100% of the shares in the operating companies of the franchise system. These operating companies are the entities that enter into contracts and incur liabilities. Therefore, operating companies generally will not own any assets of the franchise business.


Advantages

Under this structure, you can generally protect your business’s assets when a third party sues the operating company. This is because the holding company owns the business assets. However, you should note that there are some exceptions to this rule. For this reason, discussing this structure further with a legal professional would be helpful.

Another advantage of a two-tiered company structure is that you can enjoy specific tax and investment benefits. It would help if you discussed these benefits with your financial advisor.

Disadvantages

The main disadvantage of this structure is that it incurs high startup and management costs. This is because you must create separate accounts and records for each company. Additionally, you will need legal agreements between the holding company and the operating companies for the licensing of any intellectual property. Moreover, this can become more complex as your franchise system grows.

Continue reading this article below the form
Loading form

Trust Structure

A trust is a legal relationship where the trustee owns the business’s assets and operates the business on behalf of the trust’s beneficiaries.

The two broad categories of trusts include:

  • a discretionary trustwhere the trustee chooses how to distribute the assets to the trust’s beneficiaries; and 
  • a unit trust, where the trustee does not have a choice in how to distribute the trust assets. Instead, the beneficiaries of a unit trust own a set amount of units, meaning you must make your distributions around these set amounts.


Advantages

There are asset protection benefits to operating a franchise through a trust as the trustee owns the business’s assets and operates the business on behalf of the trust.

Additionally, there are some tax benefits to operating a franchise through a trust. It would help if you discussed these benefits with your financial advisor.

Disadvantages

The main disadvantage of operating a franchise through a trust is that it is more expensive to set up than a company.

Additionally, a trust distribution can cause problems if your business needs working capital or wants to attract investment. This is because the trustee must distribute the trust’s income (and profit, if any) to the beneficiaries each financial year.

Key Takeaways

Different franchise business structures can help protect your business’ assets. However, each structure can incur different costs. Therefore, regardless of your chosen structure, you should seek legal and financial advice before turning your existing corporate business into a franchise.

If you have questions about franchise business structures, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a trust?

A trust is a legal relationship where the trustee owns the assets on behalf of the trust’s beneficiaries.

What are the advantages of operating a franchise through a trust?

A range of asset protection and tax benefits exist when operating a franchise through a trust. To find out more about these benefits, feel free to contact one of our experienced franchising lawyers. 

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
George Raptis

George Raptis

Read all articles by George

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards