Starting a franchise in Italy: which legal structure should you choose?

Joining a franchise network means setting up an independent business, not becoming a branch of the franchisor. Before signing, you therefore need to decide who will take on the obligations under the agreement: you as a sole trader, or a separate business entity. This choice affects which assets are at risk, your relationship with any business partners and your administrative costs. There is no single best option: you need a structure that suits your plans.

1. Start with who will sign the agreement

Italian Law No. 129 of 6 May 2004, which governs franchising in Italy, describes franchisors and franchisees as legally and economically independent parties. Sharing a brand and business model does not remove the franchisee’s responsibility for their own business.

The law requires the agreement to be in writing to be valid, but it does not require franchisees to set up an SRL, an Italian limited liability company. The choice of legal structure depends on the general rules governing businesses and companies, as well as any conditions imposed by the franchisor.

Ask at the outset whether the franchisor accepts sole traders, partnerships and limited liability companies, or sets specific requirements. These commercial conditions should not be confused with legal obligations.

Decide who the contracting party will be before signing. Signing in your own name with the intention of transferring everything to a company later does not make that transfer automatic: you may need the franchisor’s consent and additional agreements. If the company has not yet been incorporated, ask a lawyer how to handle negotiations and any preliminary commitments.

2. Compare liability and assets at risk

The key differences are not just about tax. Above all, they concern who is liable for the business’s debts.

• Sole trader (impresa individuale): this does not separate business and personal assets in the same way as a limited liability company. The owner is liable for business debts with their personal assets too, subject to the applicable rules.
• General partnership (società in nome collettivo, or SNC): partners have joint and several, unlimited liability for the partnership’s obligations. Do not choose this structure simply because it appears straightforward to run.
• Limited partnership (società in accomandita semplice, or SAS): this distinguishes between general partners, who have unlimited liability and management powers, and limited partners, whose liability is normally limited to their capital contribution. Limited partners who become involved in management may lose this protection in circumstances specified by law.
• Limited liability company (società a responsabilità limitata, or SRL): as a rule, the company is liable for its obligations with its own assets. This does not remove any personal liability directors may have, or commitments individuals have made in their own name.

An SRL, including one with a single shareholder, therefore does not provide blanket protection from personal liability. If you sign a personal guarantee required by the franchisor, you take on an obligation separate from the company’s. Ask for the documents to distinguish clearly between your signature as the company’s representative and your signature as guarantor.

3. If you have business partners, agree who makes decisions and who does the work

Starting a business with a family member or investor requires more than an agreement on how to share profits. The franchise agreement may require a designated operational contact, a partner or shareholder’s personal involvement, or specific conditions concerning the ownership structure.

Before setting up the business entity, put at least the following points in writing:

• who will contribute money, assets or other resources, and on what terms;
• who will work in the business day to day and how they will be paid;
• who can sign contracts and authorise spending;
• how decisions about further contributions will be made;
• how disagreements, prolonged absences or a partner’s departure will be handled.

Have the governing documents, any agreements between partners or shareholders, and the franchise agreement checked for consistency. Having a sufficient majority to approve a decision internally does not necessarily mean that the decision is also permitted under the agreement with the franchisor.

Within a franchise network, collaboration works better when everyone knows who represents the franchisee and what decisions they can make.

4. Assess the overall cost, not just the set-up costs

Ask an Italian accountant (commercialista) for a written comparison of the structures that realistically suit your plans. This should cover set-up costs, accounting, annual compliance requirements, professional advice, tax treatment and the social security position of those involved.

Avoid basing your decision solely on the initial cost or a single tax rate. The outcome also depends on how partners, shareholders and directors are paid, whether profits are distributed or reinvested, and the participants’ personal circumstances. A structure that is inexpensive to set up may become unsuitable as the number of owners, employees or contractual obligations grows.

Allow enough time to choose the structure without cutting short your review of the franchise offer: Article 4 of Law No. 129/2004 requires the complete agreement and the prescribed supporting documents to be provided at least 30 days before signing.

In practice: before signing, prepare a summary identifying the contracting party, partners or shareholders, signing powers, assets at risk and annual costs. Ask an accountant and a lawyer to review it alongside the agreement: the legal structure should support your plans, not be a decision left until the last minute.