Franchise companies consist of a franchisor who owns the rights to products, services, delivery methods or other processes, and franchisees who operate under the franchisor’s brand name. The structure of the franchise company helps determine how well the company operates in the business environment.
A franchise company’s structure typically begins with its form, such as sole proprietorship, partnership, limited liability company or corporation. Most franchise companies are corporations, because this business form provides the most legal protection and allows for issuing stock.
Franchise companies may also determine how business owners and managers structure their internal operations. For example, the company may divide functions by type, such as marketing, franchising, accounting and corporate activities.
Setting up multiple corporations in a franchise operation can help create more legal protection. One corporation may own all land or real estate, a second owns any franchise-owned locations, and a third acts as a management company to run the entire set of corporations.