Registering Your Franchise Business
Franchise businesses come in many shapes and sizes. At one end of the spectrum are franchises that can in effect be run from the kitchen table, and at the other end of the spectrum are franchises that require large retail premises from which to operate.
The type of franchise business you want to buy will have an impact on the legal format that your business will take. You have a number of options when deciding what kind of business format your new franchise will take:
Sole traderThis is the most basic form of business format. Your new franchise will trade as a single individual with no limited liability. You are personally liable for all the debts the franchise may have. For very small franchise businesses, sole trader status is ideal as it is the easiest to manage and attracts the least operating costs.
PartnershipIf you are going into the franchise business with friends, family or colleagues, a partnership could be the ideal business format. Remember that each partner must be separately registered as self-employed. Under a partnership each partner is separately assessed for tax and National Insurance. It’s also important to realise that all partners are liable for any debts in the business.
Limited companyMost franchise businesses especially those with a retail outlet are usually set-up as limited companies. The limited liability of this kind of business format gives the owner some protection against debts that may be incurred as the franchise operates. But more paperwork and more complex accounting (which are prepared at a higher cost) are a legal requirement of all limited companies.
Registering your businessAll new limited companies that are formed in the UK must be properly registered with Companies House. This is part of the Companies Act 2006 and the Companies Act 1985. Your legal advisor can give you details on which elements of these Acts apply to your franchise business. More details about company formations, and the forms you will need to complete are on the Companies House website: www.companieshouse.gov.uk.
The basic procedure for registering (known as ‘incorporation’) a new business is outlined below:
Step 1: Documents and forms
To form the Company that will be the legal form of your franchise will mean gathering together several pieces of paperwork. The key documents are:
- Articles of Association
- Memorandum of Association
- Form 10 (Statement of the First Directors, Secretary and Registered Office)
- Form 12 (Declaration of Compliance with the Requirements of the Companies Act)
Form 10 and 12 are free from Companies House. Articles and Memorandum of Association forms are available from leading stationers.
Note that these forms apply to company registrations in England, Wales and Scotland. If your franchise is in Northern Ireland, you need to contact the Northern Ireland Department of Enterprise, Trade and Investment [www.detini.gov.uk].
Step 2: Registered offices
Every Company must have a registered office. This doesn’t have to be the premises where you are operating your franchise business from. The registered office is the official address of your business and should always be valid so that communications and documents can be sent to it that you will receive.
Step 3: People and your company
A limited company can be formed by just one person. These are called ‘single-member private companies’. Companies, however, usually have one or more directors and a company secretary. These people are formally identified on the documents that are submitted to Companies House.
Step 4: Submitting your forms
Once you have completed all of the relevant forms and they have been submitted to Companies House they will be checked. Assuming all of these checks are successful, they will be filed where they are held available for public inspection.
The cost of filing your franchise business forms with Companies House is currently £20. A fast track service is also available for £50. Brokers can also do the company formation work form for you and can cost upwards of £500.