146
Franchisee rights
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Sole trader, partnership
or Ltd?
In what capacity should new franchisees own and operate their business?
Lawyer Manzoor Ishani sets out the options...
W
HEN SOMEONE buys a franchise, they buy the right deduction of all expenses) will be theirs to keep and it is they who will
to run a business. Statistics show that a large number of transfer the business to the new owner – there is no one else who can
rst-time franchise buyers have never owned a business transfer the business.
of their own. One of the decisions they must therefore make is, in what One aspect of being the sole proprietor of a business, which people
capacity should they own and operate that business? should be aware of, is that a sole proprietor is personally liable for the
There are three principal ways in which a business can
“The signature
debts of the business; to the franchisor for the performance
be owned and operated: by a sole trader; by a partnership; of the franchise agreement; to their customers for
or by a limited liability company.
of one partner is
performing contracts and also to third parties for any
enough to bind all
claims which may arise from running the business, e.g. a
Sole trader
the other partners”
claim for a breach of contract or a claim for a loss suffered
Where individuals own and operate a business for by a third party as a result of negligence on the part of
themselves, they do so as sole traders. Essentially, the pro ts of the the franchisee. Likewise, any money borrowed from a bank would be
business belong to them, and it will be up to them to choose what personally owed by the franchisee to the bank, even though the money
proportion of those pro ts they take out of the business for their own borrowed is for the purposes of the franchised business.
use. Generally speaking, from the tax point of view, they will be taxed on
all the pro ts of the business, whether they transfer all or only a part of Partnership
the pro ts into their private bank account. They will be the sole owner of It is not uncommon for a franchised business to be owned and operated
the business and, as such, if and when they sell it, the sale price (after the by two or more people (usually a husband and wife team). In these
April 2009
www.businessfranchise.com
BF146-147_Manzoor_Apr09 x.indd 2 26/2/09 11:32:05
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