What’s the Best Corporate Structure for a Franchisor?

When you’re setting up (or restructuring) a franchise network, one of the first strategic questions you’ll face is: what’s the best corporate structure for the franchisor entity?

Like most things in franchising and law, there’s no one-size-fits-all answer. The “right” structure depends on the size of your network, your risk profile, your existing operations, your appetite for complexity, and—very importantly—your tax position.

That said, there are some consistent principles we see applied across successful networks, and they’re worth considering from the start.

Start with a Risk Mindset

The reason franchisors so often use multiple entities is simple: risk management. A franchisor faces risks that other businesses don’t—disputes with franchisees, regulatory compliance issues under the Franchising Code of Conduct, workplace law compliance, and the possibility of litigation from third parties.

If a single company owns everything—your intellectual property (IP), franchise agreements, operating leases, and supply arrangements—then one successful claim could potentially bring the whole structure undone.

The bigger the network, the more we tend to see “silos” created between entities. It’s not uncommon in large franchise systems to find:

• A dedicated franchisor company that deals only with franchise agreements

• A separate IP holding company that owns trademarks and other valuable intellectual property but doesn’t trade

• Different companies for corporate store operations, supply functions, or even each individual lease

These silos are designed to quarantine valuable assets from claims and ring-fence liabilities.

Separating Existing Corporate Operations

If you already have an operating business—say, corporate-run stores—it’s generally a good idea to keep these in a separate entity from your franchisor company.

You’ve got two main options:

1. Use the existing company to continue operating corporate stores or other business units, and set up a new company to be the franchisor

2. “Syphon off” the existing operations into a new company, leaving the original company free to act as franchisor

Which way you go will depend on where the value and risk currently sit, and which entity you’d prefer to be “exposed” to potential franchisor liabilities.

Having a New Entity Act as Franchisor

A franchisor carries inherent risk—every franchise agreement signed is a potential dispute in the making. For that reason, many networks establish a brand new entity to act as franchisor right from the outset.

This approach has a few advantages:

• The franchisor starts with no baggage from past operations

• You can be deliberate about what assets and liabilities it takes on

• If things go wrong, your existing operations and other assets may be insulated

Quarantining IP

Perhaps the most valuable asset in your network is your intellectual property—your brand name, trademarks, and proprietary systems.

Best practice is to hold this IP in a separate company that does not trade. That means:

• The IP company licenses the IP to the franchisor and/or operators

• It doesn’t employ staff or enter into risky commercial contracts

• It’s insulated from operational disputes or claims

If something goes wrong in the trading entity, your brand remains protected.

Where Trusts Fit In

A trust can be a useful part of a franchise corporate structure, often combined with a company as trustee. Trusts can offer:

• Tax flexibility (income can be distributed to beneficiaries in a tax-effective way)

• Asset protection (if structured and managed properly)

For franchisors, a trust is more commonly seen in ownership and investment structures rather than in the franchisor company itself. For example:

• An IP holding company might be owned by a discretionary trust

• Corporate stores might be operated under a unit trust where investors hold units

Trusts do add complexity and must be managed carefully to maintain asset protection benefits.

Cost vs Risk – Finding the Right Balance

Operating multiple companies (and possibly trusts) comes with ongoing costs—ASIC fees, accounting fees, and administrative overhead.

Before setting up an elaborate structure, it’s important to do a risk assessment:

• If you operate in a low-risk industry, a simpler structure might be sufficient

• If you operate in a riskier industry—think food service, fitness, or children’s services—it’s often wise to err on the side of more separation

Some big networks go very far with this—holding each lease in a separate company, creating separate companies for supply functions, and even splitting state-based operations across entities. The aim is always the same: if one entity is sued or fails, the others can keep operating.

Make Sure the Structure is in Your Disclosure Document

Under the Franchising Code of Conduct, you’re required to set out your corporate structure in the Disclosure Document. This means franchisees should be able to see:

• Which entity is the franchisor

• Which entity owns the IP

• Which entity operates corporate stores

• Any related entities involved in the franchise system

This isn’t just a compliance requirement—it’s a good governance tool. It ensures you have clarity over your own structure, and it gives franchisees confidence that the business is well-organised.

Get the Right Advice

There are no hard and fast rules here, and the “best” structure for one franchisor might be totally wrong for another. The key is to:

1. Start with a clear understanding of your current and future risks

2. Consider asset protection and tax efficiency together

3. Get specialist tax and legal advice before you start moving assets or incorporating new entities

Done well, your corporate structure will protect your brand, give you flexibility as you grow, and make sure you’re not taking unnecessary risks with the most valuable parts of your business.

The below is illustrative of some common structures: