Tips to Protect Your Assets When Purchasing a Franchise

When you are purchasing a franchise, you need to focus on a number of important things; one of the most vital aspects is to make sure your personal wealth isn’t at risk.

Every person has different circumstances and it’s why you need to assess these objectively and on the basis of the franchise business you are purchasing.

While the franchise business environment gives you plenty of scope to expand your business and make a success of it, protecting your assets can pose a major challenge. The one way to mitigate this risk is to create the right set-up. There are various legal structures you can lean on while buying a franchise such as:

  • Company
  • Sole trader
  • Trust with either an individual trustee or a corporate
  • Partnership of companies or individuals

Experts aver that it’s best to use the trustee or company structure; this is because it helps protect your assets and alleviates most of your legal responsibility. The legal implications of the different structures should be discussed with a franchise lawyer as well as an accountant. The former’s advice will help in asset protection while the advice that the accountant provides will help assure the most effective taxation structure in your circumstances. Read more for tips on how to protect your assets when you purchase a franchise.

Different options that come into the picture

  • Most Australian franchisors will ask for personal guarantees from the directors of the corporate trustee or the corporate franchise.
  • This applies to landlords as well; and in most instances, they will also need the directors of the tenant company to provide guarantees.
  • If you have a spouse, it might be a better option to form a corporate franchisee with only one director; however, all the assets would be transferred to your spouse or some other family member.
  • It goes without saying that all the expenses involved in transferring the assets would have to be matched against the potential liabilities; you would have to objectively decide whether this is worth doing at all.
  • You also need to consider whether your franchisor requires your spouse to sign a guarantee. If that is the case, then transferring the assets to your spouse’s name will be moot.

The insurance aspect

There is one more effective way to protect your assets when purchasing a franchised business and this is something you should use regardless of which legal structure you are following. You should buy and maintain a certain amount of business insurance with reference to the franchised business’ operations. The insurance cover you opt for would be dependent on the industry, type, and size of the business as well as a range of other factors. Some of the basic things your business insurance should include are:

  • Workers’ compensation insurance- this covers employees in your business in case an accident occurs while they are at work.
  • Public liability insurance- This is important in case any individual sustains injury or is harmed while on your business premises or while dealing with your business.

The franchise agreement will have detailed information about the different types of insurances you would need to take out in order to run the franchised business. It’s best that you consult a lawyer as well as an insurance broker to identify what cover is suitable for your business and whether it complies with asset protection as well as the terms of the franchise agreement.

If you want to know anything more about franchising or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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