Starting a Business

Franchise Basics

People dream of starting their own business, but getting a new venture off the ground is extremely risky, given the time and financial commitments involved. One way to effectively offset the risk is to buy a franchise business instead of trying to develop a new concept on your own. Operating a franchise business allows you to capitalize on the success of an established business while still enjoying many of the benefits of owning your own business. What is a Franchise? A franchise is a type of license arrangement that allows the franchisee, the person buying the franchise business, to utilize the franchisor’s already established business concept, including all proprietary information, intellectual property and proven business models. After learning about the franchise and completing any required training, the franchisee is allowed to offer services and/or sell merchandise under the name of the franchisor. In a typical franchise arrangement, the franchisee pays the franchisor an initial fee, commonly referred to as a “franchise fee,” as well as an ongoing licensing fee or royalty which is usually a set percentage of the business’ revenues for an established period of time, such as ten years. The ongoing fees are typically collected on a weekly or monthly basis. Beyond the basics, franchise arrangements can differ significantly from one to another. Some are heavily structured with a high level of oversight, while others provide franchisees a considerable amount of autonomy in how the business is operated. The details of the franchise relationship are set forth in a written contract typically referred to as a “Franchise Agreement.” Information about the franchise and the financial investment required to start the business is provided to the franchisee in a document called a “Franchise Disclosure Document” or “FDD.” What are the Benefits of Franchising? Both the franchisor and the franchisee


Explaining The S-Corp

C-Corporation v. S-Corporation While starting a new business venture, many entrepreneurs will consider operating their business as a corporation. Incorporating offers many substantive benefits to business owners in addition to providing a more professional appearance to customers, vendors and competitors. The two most popular types of corporations in Florida are C-Corporations and S-Corporations. Corporations are, by default, C-corporations with the letter “C” referring to the applicable subchapter of the Internal Revenue Code (IRC) that governs corporate taxation.  For some businesses that meet the requirements under subchapter S of the IRC, it may make sense to elect “S-corporation” status with the IRS instead of operating as a C-Corporation. C-Corporation and S-Corporation Basics In many respects, C-corporations and S-corporations are the same. In Florida, both types of corporations are formed by filing Articles of Organization with the Florida Division of Corporations. In both cases, the corporate business entity is a separate legal entity from its owners (shareholders) and the entity enjoys a perpetual existence. Both C-corporations and S-corporations issue shares of stock to investors/owners and must adhere to certain corporate formalities required by Chapter 607, Florida Statutes.  For example, Chapter 607 requires the corporation to hold an annual meeting of its shareholders (Florida Statute § 607.0701), keep minutes of all meetings of its shareholders and board of directors (Florida Statute § 607.1601), and file an annual report with the Florida Division of Corporation (Florida Statute § 607.1622). The shareholders of both C-corporations and S-corporation also enjoy limited liability. This means that a shareholder, even if he or she is the sole or majority shareholder of the entity, is generally not personally liable for the business’ financial obligations.  So, if the company is sued by a customer, vendor, or other party, the shareholder may lose her investment in the corporation, but his or