What legal structure is best for a franchise business?

Franchisors allow their franchisees to adopt whatever legal structure suits them although some insist, for technical reasons, that all franchisees are limited companies. At one level it really does not matter because franchisees will be required, if they want to operate through a limited company, to guarantee to the franchisor the obligations of the limited company so that limited company franchisees will be treated, at least in relation to liabilities to the franchisor, in the same way as if they were sole trader or partnership franchises. Limited liability franchisees will, of course, still benefit from limited liability when dealing with third parties.Essentially there are three options in relation to the legal structures. The simplest that involves no formalities is to operate as a sole trader. If there is more than one person involved in the franchised business you would operate as a partnership, which would require a partnership deed. The most complex, because it requires the preparation of a memorandum, articles of association and lodging forms with Companies House, is a limited company.Which structure is best will depend on three issues. The first is how important it is to have limited liability in relation to third parties, tax and set-up costs. In relation to tax, franchisees need to obtain tax advice from an accountant but, as a rough rule of thumb, if you are making substantial profits limited liability may be best. In terms of set-up costs and continuing costs, limited companies can be expensive.