To a certain extent the answer depends on what it is that you and your family member are intending to do, but bear in mind that the franchisor will want to know precisely who it is dealing with as its franchisee. In other words franchisors do not like and generally will not allow silent partners.
Essentially if there are two or more individuals involved in a business venture you have the choice of whether to operate your business as a partnership or as a limited company. Partnerships do not have to be registered at Companies House and so there are no formalities to complete but, generally, you would need a partnership agreement to set out the obligations and duties of each of the partners. Further, the partners would be personally liable to the franchisor, and others, in respect of their franchisee business.
The other alternative is to establish a limited company where you and your family member would hold shares and would be likely to be directors as well. It is relatively cheap to establish a limited company and many franchisees do operate through this structure. Usually the advantage of a limited company is that, as its name suggests, it limits your liability but franchisors will always want the individual who establish a limited company to operate the franchise business to guarantee the obligations of the company they have established, at least in relation to liabilities to the franchisor.
Clearly which structure you adopt will depend on a number of factors including tax, on which you would need advice from an accountant, but often franchisees start their business as a partnership and then, with the franchisor’s prior approval, convert their business to a limited company.
Written by: John Pratt
Partner, Hamilton Pratt