Franchise Vs. Partnership

Selecting the right type of business structure is an important part of starting and operating a business. Partnerships are a common organizational structure when two or more people start or expand a business. Several types of partnerships exist in the business environment. Franchises are a type of business model. A business model usually represents a specific way companies operate and produce consumer goods or services. Choosing a franchise organizational structure may depend on the rules of the franchisor.

Franchises are a business organization where an individual owns and operates a business under a licensing agreement with a franchisor. This contractual relationship often dictates how a franchisee runs the business, acquires economic resources and markets itself to consumers. Partnerships usually include two or more individuals responsible for managing and operating the business. Partnerships also use contractual agreements to outline various legal issues involved in a partnership.

Common types of partnerships include general, limited and limited liability. General partnerships may have two or more owners who share equal rights and responsibilities of the business. One partner can create serious legal obligations for each partner in the business; general partners are also personally responsible for business debts. Limited partnerships allow individuals to limit their liability to his personal investment in the business. Limited liability partnerships offer general partners limited liability against a partner’s wrongful acts or the debts and obligations of the business.

Franchises and partnerships are similar regarding certain business features. Franchise agreements typically outline the licensing fees and royalties franchisees must pay the franchisor relating to operational revenues and/or profits. Partnership agreements outline which individuals are considered general or limited partners and what percentage of profits each partner will earn. Partnership agreements may also outline the specific duties and responsibilities of each partner and how revisions can be made to the partnership agreement.

Many franchises are incorporated to limit the legal liability these companies may face from customers or employees. Individuals starting franchises should also carefully review the franchise agreement to determine the other requirements the franchisor is imposing. Partnership agreements may be adjusted or changed due to current economic conditions; franchise agreements may not offer this advantage. Franchisors may also choose to alter the original contractual agreement and possibly create a more difficult operating agreement for its franchisees.

Individuals may need to consult an attorney or other professional organization regarding the best organizational structure or business model for their companies. In addition to law firms, a local chamber of commerce or Small Business Administration (SBA) office may provide information relating to the local economic environment and the best types of business models. These agencies may also be great resources for talking to current business owners, assessing their types of business models and reviewing how well their businesses are doing.