Buying into a franchise may seem like a wise move since your business will share a brand already trusted by the public. Still, franchising offers some of the same risks as any other business venture, such as the possibility of lawsuits against you. This is why some entrepreneurs incorporate their franchises.
Entrepreneur describes three reasons why some business owners decide that an LLC or a corporation is the best legal structure for a franchise.
Franchisor requirements
The decision to incorporate your business might not be yours. Many franchisors require their franchisees to form a specific business entity. So before you gain approval to join a franchise, you might have to agree to make your franchise an LLC or another kind of corporation.
Legal protections
Running your business as a sole proprietorship or general partnership exposes you to liability if someone sues your business. By contrast, creating your business as an entity separate from your personal identity shields your personal assets in the event of a lawsuit against your enterprise. An LLC is a popular choice for business owners seeking legal protection.
Managing business taxes
Business structures provide varying tax advantages. An LLC is often an attractive option since it does not require as much financial reporting to the government as an S- or C-corp. However, S-corps have some popularity because their tax structure can avoid double taxation on corporate income.
Proper planning for your business from the outset could avoid legal problems that might endanger your business and even your personal finances. Choosing the right business structure may make the difference.