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Can Partners Open a Franchise?

Expert: Ned Levitt

Jude asked:

My friend and I would like to open a Tim Hortons. We are going to be the partners by sharing 50% each. Do we have to form a partnership before opening the business? Can partners open a franchise?

Ned Levitt answered:

Partnerships can be formed to purchase franchises; it's done all the time. However, a partnership amongst individuals exposes the individuals to all liabilities in connection with the franchise.

Often, for liability and tax reasons, people purchase their franchises through corporations. Sometimes, there is a tax advantage in not incorporating during the initial phase of the franchise to carry back start-up losses against other income of the partners.

Finally, it is very important to have a properly drafted partnership agreement to protect all concerned.

About the author

Ned Levitt is the General Counsel to the Canadian Franchise Association (CFA).

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