Franchise Basics in Georgia

Most individuals dream of one day being their own boss, but find themselves intimidated by the prospect of quitting their day job.  Contrary to popular belief, one does not need a revolutionary idea like Jeff Bezos with Amazon or Elon Musk with Tesla to retire that old nine to five.  Franchising offers a type of entrepreneurial opportunity that tens of thousands of American’s utilize to quit their day jobs and own their own business.  Introduction to Franchise Basics in Georgia.

One in seven businesses operating in the U.S. today incorporate some form of franchise.  It is a business model that allows those without revolutionary ideas operate under the support of a corporate banner while simultaneously calling the shots and being in business for themselves.

The most common type of franchise is business format franchising, where in return for operating in conformity to rules laid out in a Franchise Agreement by a corporate franchiser, the franchisee or small business owner, is provided a full range of services and support by the corporation to offer them the best shot at maintaining a successful business.

The business model is simple.  The corporation (franchiser), lends the expertise of their successful and established business practice to a would be entrepreneur (franchisee) for a fee or royalty on the profits.  Both have a stake in the success of the business venture, so both work together to turn a profit.  This works too, as statistics show that licensees of franchises are more successful on average than those starting a business in the same industry by themselves.

Because franchising has become big business, there are regulations in place to govern the relationship.  Georgia residents should know that the state is not a franchise regulation state, meaning there is no fee or paperwork to file with the Georgia Secretary of State.  The Federal Franchise Rule and the Georgia Franchise Act, however, still govern rules in the state.

The Federal Franchise Rule is a regulation governing the relationship between a franchisor and a franchisee.  Written in very friendly terms to the franchisee, it takes into account that this individual is a far less sophisticated than the large corporation they are doing business with.  The rule writes in protections for deceptive practices and aims to facilitate informed decisions through mandatory disclosures.

One such document driving these disclosures is the Federal Disclosure Document (FDD).  This document requires franchisors to disclose to the franchisee at least 14 days before the sale, information needed to make an educated decision on the purchase.  This document includes a wealth of information, but most importantly outlines the start-up costs needed to support the business, as well as empirical data showing realistically what the franchisee can expect to earn from the venture.  These documents can run up to 200 pages, so it is important to be thorough and know fully the agreement that entered into.

Another document required by the Federal Franchise Rule is the actual Franchise Agreement itself.  This is the contract between the two would be partners that details the actual operational agreement.  It will include provisions that both parties understand the elements of the FDD, material terms of who owns what assets and the extent of the licensing agreement, as well as the length of the agreement.  As with any other contract, this governs the operation of the business, so it is best to leave the negotiations to attorneys with experience in evaluating Franchise Agreements so that they can negotiate substantive changes to protect your interests.

As stated above, while there is no requirement for franchises to register or file FDD documents in the state, there still exists the Georgia Franchise Act.  This act, while less expansive than the federal rule, defines what businesses qualify as a franchise in the state, as well as several terms important to franchise relationships such as franchise fee, franchisor, sub franchisor, etc.  The act also controls how actions such as transfer, termination, and renewal occur within the state.

Franchising in the state of Georgia offers a promising business opportunity, but can also become extremely complex.  If you are working towards the purchase of a franchise, or simply have questions about the process, give us a call!  Thrift & McLemore’s attorneys are well versed in drafting franchising agreements as well as post agreement support as you get your Georgia franchise off the ground.  Contact Thrift & McLemore by email at [email protected] or by phone at 678-784-4150 to discuss how we can help you today!

Legal Entity Establishment: Choosing the Right Legal Form for Your Georgia Startup

By Kent Bailey, Esq. – [email protected]

#GAStartUpLawyer

Choosing the proper legal form is one of the single most important decisions in the infancy of an Entrepreneur’s startup endeavors.  It will guide how decisions regarding the operation of business will be made, the exposure to liability of select members, and rules regarding taxation.  It is fair to assume that most, if not all, entrepreneurs have a sound foundation in the principles of business.  A large stumbling block for many of these same entrepreneurs is wading through the complexities of choosing the correct legal entity for their Georgia business.

Choosing the correct business formation depends on a variety of factors that are case specific to each small business owner’s individual situation and objectives.  Each entity carries with it its own pro’s and con’s that must be carefully weighed against the would be business owner’s needs, with an eye for optimizing success of the organization.  What follows are the most common entities and some information regarding each of them.

Sole Proprietorship

A Sole Proprietorship is the easiest type of business to form.  The business usually operates in the name of the owner.  There is no formal filing with the state to create this legal entity, and a business and or occupational license is all that is required to begin.  While this is the easiest business form to create, it also carries one of the largest drawbacks.  Personal and business activities are not distinguished in a Sole Proprietorship, meaning that all income from the business passes through to the owner or sole proprietor.  There is also no shield from liability, meaning that the business owner is personally liable to all debts of the business.

Partnership

Similar to a Sole Proprietorship, a partnership can be very simple to form, and is merely an agreement regarding a business relationship between two or more people who join to carry on a trade or business.  Where a Sole Proprietorship has a single owner and decision holder, a Partnership has at a minimum two members who are responsible for the carrying on of the business.  These partners contribute capital, labor, or skill to the organization and in return share in the profits and losses.  Generally speaking, a Partnership carries with it unlimited liability and pass through taxation, although some exceptions to this exist.  While a formal, written partnership agreement is not necessary to create a partnership in Georgia, it is strongly recommended.

C – Corporation

A C Corporation differs from a Sole Proprietorship or Partnership in that it is a unique legal entity that exists distinctly and separately from its owners.  It requires more steps to be properly formed, and must be registered with the Secretary of State in Georgia.  Ownership of a corporation is governed by shareholders of the entity who appoint a board of directors to oversee corporate decisions and policies.  This board of directors can elect officers of the company to manage day to day affairs.  In a start-up or small business, these officers are also typically the shareholders.  With the drawback of the C Corp. being the complexity of the organization, the benefit of this entity is the legal separation of assets and liability from the owner.  Income from the Corporation is taxed to the corporation then sent to the individual in the form of a distribution.  This is referred to as “double taxation” however the benefit of this formation is that the liability of the corporation does not extend to the personal assets of the owner.

S – Corporation

An S – Corporation is comprised of the same formation that exists for a C – Corp. above save for one difference.  S – Corp. Status is an election made to have the corporation’s income and expenses taxed to the owner’s via “pass through” discussed above.  It offers the same liability safe havens as a general corporation, but avoids the “double taxation” that exists within a C – Corp.  There are limitations as to who may qualify for organization under an S – Corp.

Limited Liability Company

A Limited Liability Company; or LLC is a hybrid entity that combines the limited liability characteristics of a corporation with the beneficial tax structure of a partnership.  While requiring more formality and steps to create than a Sole Proprietorship or Partnership, an LLC enjoys the same flexibility that these entities share with regards to pass through taxation and ease of ownership decision making.  LLC’s also enjoy the benefits of corporate formation with regards to limitation of liability, while avoiding the rigidity of double taxation, required shareholder meetings, complex decision making, or issuance and management of stock.  Limited Liability Companies are popular among small business owners in the state of Georgia.

For more resources on starting your Georgia business, reference the Secretary of States “First Start Business Guide”, at https://sos.ga.gov/admin/files/First_stop_business_guide.pdf.  If you wish to retain legal help in evaluating, starting, or managing your Georgia small business or start-up, contact Thrift & McLemore by email at [email protected] or by phone at 678-671-4031 to discuss how we can assist you in creating your Georgia business today.

Please visit us on the web at www.thriftlegal.com.

#GAStartUpLawyer

Ratings and Reviews

10.0Craig Thrift
Craig ThriftReviewsout of reviews