Do I Need to Register as a Business When Buying a Franchise?

Mar 1, 2019
Reading Time: 3 minutes
Written by Vincent Appleton

You may be thinking about purchasing a franchise, but are wondering where to start? Is my franchise a business, a company or am I merely the agent of the franchisor? Never fear, this blog will shed light on all this and more.

However, in short, yes you will need to register your franchise, but what business structure you choose for your franchise will depend on many different factors. These factors include:

  • Your Budget
  • If You want to Limit Personal Liability
  • Taxation

The two main forms of business registration for franchises are either as a sole trader/partnership or as a private company.  

For a general overview of what a franchise is, click here.  

Registering Your Franchise as a Sole Trader or through a Partnership

The simplest and cheapest way to register your franchise is as a sole trader or through a partnership. Although you will be using the trading name of the franchisor, you will still need to register an ABN (Australian Business Number) for taxation purposes.

It is important to know that the trading name of your franchise and your ABN are not the same thing. You cannot have the same ABN as the franchisor. Although you are using the franchisor’s trading name and products, you are not the same business.

Taxation for Franchises as Sole Traders or Partnerships

Sole trading or partnering is simpler and cheaper. However, what you personally earn from the franchise is taxable. Of course, there are deductions and exemptions that can be claimed. These include:

  • Royalties and Interest Payments
  • Franchisor Training Fees
  • GST from Payments to Franchisor

However, as a sole trader or partner, you are personally liable for the running of the franchise. Your assets may be sold to recover your franchise’s debts.

For any further questions or advice contact a taxation lawyer.

Registering Your Franchise as a Private Company

Registering as a private company is more complicated and costly than sole trading. For example, to set up a company you need to at least satisfy these four requirements:

  • Share capital;
  • One member/shareholder;
  • No more than 50 non-employee shareholders; and
  • Have at least one director.

However, registering as a private company does protect you from personal liability. To satisfy your debts your house or car cannot be targeted.

A private company is an individual and thus capable of owning assets and entering into contracts. The company is liable for all debts. Whatever assets are in the company’s name can become targeted.

For information on how to set up a company, download our free ‘Starting a Company’ ebook.

Taxation for Franchises as Private Companies

Companies get tax benefits that sole traders and partnerships do not. Those who make less than 50 million dollars in the year, which is 80% or less passive income are taxed at the lower company rate of 27.5%.

Companies making more than 50 million are taxed at 30%. Tax cannot increase above 30%.

However, for sole traders and partnerships, their tax increases to a much higher level than just 27.5% or 30%. As a sole trader or partner, the tax rate can be as high as 45%.  

For any further questions or advice contact a taxation lawyer.

Sole Trader/Partnership or Private Company

This article discusses two popular business structures for registering a franchise business. However, many franchisees use alternative business structures that can be of equal benefit. For example, you can run your franchise through a Trust to get considerable tax benefits.

For further assistance, you should contact a commercial lawyer, who will assess your situation and recommend the best business structure to use.

Don’t know where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

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