How to Choose a Company Structure Before Offering Franchises

When turning a successful business into a franchise network, one of the first decisions is which entity will act as the franchisor. Continuing with the existing business or setting up a separate company affects brand rights, support services, payment collection and liabilities in different ways. The aim is not simply to establish a new company, but to create a clear, sustainable legal structure capable of delivering on the promises made to franchisees.

1. Map your existing structure first

Before choosing a company type, document how your business is currently organised. The name on the shopfront, the registered business name on invoices and the owner of the brand may not all point to the same person or entity. One company may use a trade mark registered in the founder’s name, while another operates the pilot outlet. These differences do not disappear automatically when you start franchising.

Start by answering these questions:

• Which person or company makes the sales at the pilot outlet?
• Who holds the rights to the brand and operating methods?
• Who employs the staff who will provide training, field support and purchasing coordination?
• Who will collect the initial franchise fee and ongoing payments?
• Which business does the trading history presented to prospective franchisees belong to?

Bring the answers together in a one-page table. For each row, identify the relevant person or company, the supporting document and any action still required. This helps prevent the company signing the agreement from promising rights it does not actually hold or services it cannot provide.

2. Compare using the existing business with a separate company

Continuing with the existing business can keep operational experience, staff and trading history within the same entity. However, the financial results of day-to-day operations and franchise support activities may become mixed together. Even if you do not establish a separate company, put accounting reports in place that allow you to track franchise activities separately.

Setting up a separate company can make the income, expenditure and service responsibilities associated with franchise relationships easier to identify. It is worth considering if you plan to bring in new shareholders or transfer certain activities in the future. However, it also brings additional incorporation, accounting, staffing and intercompany agreement requirements.

A new company does not automatically acquire the existing business’s experience or brand rights. Nor does having the same shareholders mean that two companies can use each other’s resources without documentation. Establishing a separate company also does not automatically eliminate liabilities arising from guarantees given or commitments made.

Do not base the decision solely on incorporation costs. For each option, compare the administrative workload over a year, the capacity to provide services and the arrangements for using the relevant rights. This one-year period is a planning horizon to help you decide, not a legal requirement.

3. Understand the different elements of Türkiye’s legal framework

Türkiye has no comprehensive law specifically governing franchise networks. There is also no requirement to register on a separate franchise register, nor a franchise-specific mandatory pre-contractual disclosure system with standardised content. This does not, however, mean that company formation and contractual relationships are unregulated.

The Turkish Commercial Code, Law No. 6102, provides the basic framework for the formation, operation and representation of commercial companies. Incorporation requires trade registry procedures; these do not constitute registration of the franchise system. When choosing between a limited liability company (limited şirket) and a joint-stock company (anonim şirket), consider the ownership plans, management arrangements and future share transactions together. There is no franchise-specific rule requiring franchisors to choose one of these two company types.

The Turkish Code of Obligations, Law No. 6098, contains general provisions that may apply to the contractual relationship. The Law on the Protection of Competition, Law No. 4054, is relevant to arrangements that restrict the parties’ commercial independence. The Industrial Property Code, Law No. 6769, should also be considered in relation to trade mark rights and licensing.

The absence of a franchise-specific disclosure system does not mean that prospective franchisees may be given misleading information. Do not present a newly established company as though the historic trading results of the existing business were its own. Clearly distinguish the age of the company from the track record of the business model.

4. Document how services and rights pass between companies

If the franchisor and the company operating the pilot outlet are different entities, define how their relationship will work. Who will provide the training room? Who will schedule the trainers’ time? If a franchisee encounters a problem, which company will be expected to provide which service?

For each service, document its scope, the responsible party, how its cost will be covered and the remedy if provision is interrupted. Discuss the tax implications of intercompany charges with your accountant. Having the same shareholders is not a reason to skip an assessment of invoicing and accounting requirements.

If the brand belongs to another person or entity, separately check the basis on which the franchisor is authorised to grant others the right to use it. The existence of a licence does not, in itself, establish the right to grant further usage rights. Do not enter into binding commitments with prospective franchisees until your legal adviser has verified this chain of authority.

5. Check for consistency before the first agreement

For the final review, place the promotional presentation, draft agreement, payment collection account details and service plan side by side. The franchisor’s identity should be clear across all documents, and the roles of different companies should not be concealed. Use up-to-date documents to verify who is authorised to sign on behalf of the contracting company.

Together with your accountant and legal adviser, check that the chosen structure is both legally established and capable of delivering services in practice. Do not leave gaps in rights or service arrangements unresolved until after the first franchisee opens.

Practical takeaway: First establish where the rights, people and income sit; then choose the company structure. Trust in a franchise network comes not from the number of companies involved, but from the right party consistently delivering the promised services.