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How is a Franchise Different from a Partnership

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If you don’t want to build a business on your own from scratch, considering a franchise or a partnership might be your best option. Of course, these two notions have their differences and you need to make an educated decision regarding the fact which option will be the best suited for your business branch. Continue reading if you want to understand both of these notions better, along with their similarities and differences, so that you can make your final decision.

It is all about the ownership

Ownership is the main difference between a franchise and a partnership. While a franchise is a business that is owned by an individual who has a licensing agreement from a franchisor, a partnership includes having two or more people managing a business and its operations. It is important that we get an answer to what is a franchise so that this difference is a bit clearer. Apart from the fact that franchising can give you the benefit of owning your own business it also provides you with the support from a recognised brand. By opting for a franchise you are agreeing to follow the rules of the contractual relationship with that brand. This means that how you run their business, how you market it to customers, and even the manner you acquire economic resources is all predefined. And for most entrepreneurs who are starting off owning a franchise is a better option considering they are taking on a pre-existing business model that has a great potential for success. And they have the backing from a well known brand name.

Not every partnership is the same

With a franchise you know exactly what you are getting, it is an existing business model that you simply need to adopt. However, when it comes to partnerships, there are several different approaches to consider, and then decide which one works the best for your business. These are just some of the options:

General partnership

Usually in business, when we hear the word partnership, it tends to refer to a general partnership consisting of two or more partners. It is an arrangement by which two or more persons agree to share in all assets, profits and financial and legal liabilities of a business. Partners in a general partnership have unlimited liability, this means that their personal assets are liable to the partnership's obligations.

Limited partnership

A limited partnership is a partnership in which two or more partners unite to run a business in which one or more of the partners are liable but only to the extent of the amount of money that partner has invested. This also means that limited partners are not entitled to dividends but have a direct access to the flow of income and expenses. Another version of this is a limited liability partnership which protects you from any bad decisions your partner or partners might make, including putting the business in debt.

There are also some similarities

It's not all about the differences between franchises and partnerships. There are also some intersections that are worth knowing. So know that we have a bit clearer picture about each of these business models it is time to see how is it that they are alike. For example, most franchise agreements have predefined royalties and licensing fees that all franchises are required to pay the franchisor. This is not that much different than what is happening in a partnership. In partnerships, there are clearly defined limited and general partners along with the amount of profit each partner is entitled to once the business is profitable. The second similarity has to do with the manner in which they handle considerations. In most cases franchises decide to incorporate, thus reducing their legal liability in case of a lawsuit by a customer or an employee.

Based on the listed differences and similarities between these two business models it should be a bit easier to decide on which one your business will profit the most. Choosing a franchise and being your own boss does sound tempting, but you are still quite dependant on the brand and their rules and regulations. On the other hand a partnership can be fruitful if all sides are on the same page, otherwise, it can be quite damaging to the entire business.

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