Experienced Counsel For Franchisors

Last updated on July 30, 2026

Franchising allows a business to establish a regional, national or international network of units operating under the same brand name without the staggering time and expense that would be required if the parent company decided to open each location on its own. In order to open a unit, it is necessary to:

• Find each unit’s location
• Either purchase or lease that location
• Build and equip the unit
• Hire all necessary personnel
• Acquire all required inventory
• Secure all required licenses, permits and other government approvals
• Open and operate that unit

Additionally, this parent company would be responsible for all aspects of that unit’s operation and expense, while being liable for any mishaps that could occur.

Our Business Franchise Lawyers Help Clients Nationwide

Most business networks that have been established over the last few decades have been through franchising. When franchising a business, the business model is developed that determines what products or services are sold from the unit, how it should be operated, what type of marketing it will be engaged in and where the unit should be situated. Franchisees have the obligation to build the unit and take care of the day-to-day operations.

Both product franchising (where a franchisee sells a company’s product line and has the identity of the product manufacturer such as auto dealerships and oil refiners) and business format franchising (which adopts and adheres to franchise details and specifications for all units adopt and adhere to franchise details and specifications for all units) can be helpful for allowing businesses to expand without incurring the necessary cost and expenses of operating each unit.

Structuring The Franchisor Entity For Corporate Asset Protection

When launching a new franchise system, establishing a secure legal foundation is crucial for long-term stability. Proper corporate planning for franchises means moving beyond a simple, single-business model to protect your core business from operational risks. By deliberately identifying and addressing liabilities, proper franchise entity formation can prevent a legal claim against one part of the system from jeopardizing the entire enterprise.

For franchisors, setting up a resilient corporate structure involves a multitiered architecture. It should separate ownership from operations. Instead of a single corporation holding all your business assets, you can use a network of distinct legal entities:

• Parent holding company: A top-tier entity that owns the equity of the subsidiary companies. It is entirely insulated from the day-to-day operations and consumer liabilities of the franchise network.
• Intellectual property (IP) holding company: A subsidiary that holds all valuable trademarks, proprietary software and trade secrets, licensing them out safely to protect the brand’s primary assets from external judgments.
• Operating franchisor entity: The specific corporation or LLC that signs franchise agreements, manages franchisees and oversees daily system compliance. It acts as a shield, protecting the parent company from franchise-related liability.

Implementing a defensive framework provides robust asset protection for franchisors. It ensures that the foundational value of your brand is safe from operational lawsuits.

Insulating Revenue Streams

Structuring a franchise company effectively also requires strategic financial separation to protect incoming capital from litigation. A franchise system relies on diverse, high-volume franchise revenue streams, including:

• Initial franchise fees
• Monthly royalties
• Marketing or advertising funds

If these funds commingle within one operating entity, a single catastrophic lawsuit from a franchisee or vendor could deplete your entire cash flow.

To shield these critical assets, advanced structures place different financial inflows into separate corporate buckets. For example, marketing funds – which, legally, are trust-like capital collected for the benefit of the entire system – should reside in a distinct advertising entity.

By doing so, you can isolate these incoming revenues from the primary operating franchisor. This ring-fences your core brand capital so that routine business disputes cannot disrupt your system’s financial health or halt national brand growth.

Let Us Help You Franchise Your Business

For more information about franchising your business, talk with an attorney at the law firm of Kaufmann Gildin & Robbins. Schedule an initial consultation or discuss your options by calling us at our New York office at 212-235-1059 or filling out our online contact form.