ABC Holdings

ABC Holdings LLC

  • This is the main company that will file a tax return
  • If there are multiple owners (such as outside investors or multiple founders/partners) it will require a more complex operating agreement documenting capital contributions, governance and distributions
  • ABC Holdings will be the sole owner of the two subsidiary entities below

ABC IP LLC

  • This is the intellectual property (IP) company that owns all trademarks and IP and licenses them to ABC Franchise LLC
  • We will draft a simple 2 to 3 page standard licensing agreement to document the structure between the entities
  • The operating agreement will be a simple single member operating agreement reflecting ABC Holdings as the sole owner
  • This is a disregarded entity for tax purposes

ABC Franchise LLC

  • This is the franchise company and the name on the FDD
  • Will require audited financial statements
  • Will be the entity that signs the Franchise Agreement with each franchisee
  • The operating agreement will be a simple single member operating agreement reflecting ABC Holdings as the sole owner
  • This is a disregarded entity for tax purposes

How to form the entities

The best practice is to form these entities in the home state of the new Franchisor. The above is a guideline however, not a rule, as unique situations will require unique solutions. You should discuss your ownership situation with us, your corporate attorney and your accountant so as a team we can decide what makes the most sense.

You should always use a professional to form your entities, but if you don’t be sure to remember that each entity will require the owner’s legal name, one person’s social security number for the IRS to issue a Tax ID number and a non-PO Box street address.