Economist Paul Romer once said, “We fail to appreciate the magnitude of change because opportunities do not add up, they multiply.” This vision is clearly what separates entrepreneurs from the masses: their ability to adjust to change and see the unlimited potential in their business. Visionary business owners have it in their DNA to push harder and dream bigger; they’re always looking for a new challenge to conquer. If this sounds like you, then you’ve probably already set up an LLC and are looking for a fresh opportunity.
Want to go much bigger than just your LLC can handle? Here’s how you can set up a DBA franchise business under your existing LLC.
What Is a DBA?
DBA stands for “doing business as,” but it can also be referred to as a trade name, fictitious name or assumed name. Companies use this when they already have a business entity set up, but want to use a different name when they’re conducting business.
For example, let’s say you started Jen’s Childcare Services LLC to help couples in your community find trusted babysitters for their kids. Fast forward five years, and you discover that half of your inquiry phone calls are from families looking for a preschool to put their toddler in while they go to work. To eliminate the confusion and appeal to a larger audience, you keep Jen’s Childcare Services LLC as your parent company (no pun intended) and add a DBA called Jen’s Sunshine Preschool for this separate focus of your business.
The benefit of adding to an existing business with a DBA is that you don’t need to create a separate company, which would require two tax returns or two EINs (Employer Identification Numbers). However, you’ll need to register your DBA with either the state, county or city where you’ll be conducting your business.
Additionally, DBAs are only good for a specified time period, so be sure to check when your forms need to be renewed. It is also important to remember that running a DBA is not the same as having a business entity. A business entity such as an LLC, S Corp or C Corp provides certain legal protection, and most states ensure that you are the only company in that state with your unique name. The disadvantages to forming a DBA instead of a business entity are that other businesses can still use your name, and your personal assets aren’t protected from your business liabilities.
How to Start a Franchise Business Under Your LLC
Adding an Existing Franchise to Your LLC
Let’s say you already have an LLC in place, and you’ve found a new business offering franchising opportunities. Should you keep your LLC? Absolutely!
When franchisers purchase packages from franchisees to open a storefront, the franchisers are usually considered “independent contractors.” That means if Burger King gets sued for stealing McDonald’s french fry recipe, the liability is on Burger King. But if your employee fails to cook a burger safely, then you are liable for any legal fees and settlements — not the franchise as a whole. However, if you have an LLC in place, only your business is responsible for these financial obligations, and you won’t have to worry about your personal assets (such as your house and bank accounts) being seized to pay your debts.
Once you decide which franchise to own and you’ve done your research, you’ll see that there will probably be a place in the paperwork that asks for your business entity’s name and information. If you don’t have an LLC established, do that first before you sign any paperwork. After this documentation is complete, you’ll want to notify your state or county that your LLC will also be “doing business as” the franchise you joined. The first step is to contact your secretary of state’s office to see if your state has a fictitious business name form for you to fill out. If not, they may direct you to your local county office.
Starting Your Own Franchise Business
Now let’s say you have a business that’s growing like crazy, and you want to sell franchises. If you’re starting out small, you may want to structure your franchise as an LLC for its simplicity and flexibility. As you grow and expand, you may want to change your entity into an S Corp, so you can add a board of directors and have the option to sell stock to raise funds.
The franchisees you plan to recruit should also start their own LLCs. They’ll need to fill out the DBA or fictitious business name forms for their location since their LLC name will be different from the name of your franchise.
If you own several businesses, you may be wondering which business entity is right for you. Each business is different, and you may find that the tax benefits of an LLC are more advantageous than an S Corp (or vice versa). Or perhaps you want a structured C Corp so you can sell shares to increase capital. Incfile’s business experts can guide you through these complicated decisions. We’ve helped more than 150,000 businesses file their business entities, and we remove the stress and confusion from this process. From choosing an entity type to filing documents to helping you create business contracts, we’re here for you every step of the way.
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