I am a sole trader, can I also be a franchisee?

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Buying a franchise is an exciting venture that provides you with the opportunity to run your own business. It offers several perks such as having a reputable name and known product or service from which you can begin your career as a business owner.

Buying a franchise provides you, as an owner, the following advantages;

  •  A known business name
  • Branding that is familiar to the general public
  • A business structure that provides systems and policies that are readily in place
  • A right to the intellectual property of the established business

But once you have chosen the business that you are interested in franchising, there are a few more steps that you must take into consideration before getting started. These steps include;

  1. Registering your business
  2. Obtaining an Australian Business Number or ABN
  3. Considering your options regarding setting your franchise up as a sole trader or as a private company
  4. The tax considerations of both possible options

Sole Trader

First, let’s review the option of a sole trader or partnership. This option tends to be very attractive to many new business owners because it is less cumbersome and offers fairly good tax incentives. The benefits of a sole trader franchise include;

  • Simple to register
  • Less expensive registration costs
  • Deductions and exemptions on your taxes which include;
    • The costs associated with royalties
    • Interest payments on various loans
    • Training fees for yourself and your employees
    • GTS payments to your franchisor

However, the downside of registering as a sole trader is personal liability for the business. In the event that your franchise is not profitable and incurs debt, you can be held personally liable for the value of the debt. This means that your personal assets can be reached to satisfy an outstanding debt of your franchise.

Private Company

Registering your franchise as a private company is also an option. This avenue is a bit costlier and can take more work to set up. Setting yourself up as a private company entails putting more structure into place for the running of the business. When you set up as a private company you are responsible for implementing the following requirements;

  • There must be shared capital
  • You must have at least one member/shareholder
  • You cannot have more than fifty non-shareholder employees
  • You must have at least one director

These requirements can sometimes be more than a first-time business owner will want to tackle. But, if you are a veteran business owner, this may be the route you are most interested in pursuing. By doing so you are afforded different and more favorable tax options including;

  • If your business makes fifty million per year or less in passive income your business is taxed at a lesser rate of 27.5%
  • If your business makes in excess of this amount your tax rate will be 30%

This is a significant saving as those who register as a sole trader are taxed at a rate that can be as high as 45%

Regardless of which way you choose to go, it is important to discuss these options with professionals who are accustomed to advising business owners in the best option for registering their new business venture. These professionals can include solicitors and accountants and consultants who specialize in franchise ownership and registration.

In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 780 770.

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