Business Entities

Business Entities Law Paper

University of Phoenix

BUS/415

September 20, 2011

The extermination business scenario is where Frank is a successful investor. His goal is to open a chain of exterminator businesses across the United States. In my opinion, Frank should establish this business prospect as a franchise. According to "Business Link" (2011), “the franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name, and benefits from the franchisor's help and support. In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.” The Franchisors and franchisees relationship are Franchisors and franchisees are unattached and distinct legal entities for the purpose of taxation and liability. The relationship between franchisor and franchisee is one of an independent contractor and generally speaking, neither party is responsible for the torts or contracts of the other (Cheeseman, 2010).

If Frank organizes his business as a franchise this will give him the control over who he will license as franchisee, the fee he will charge for the agreement, and the market in which his new business will operate in. The taxation of the business will depend on how the franchise company has organization. If Frank incorporates his business, the company will be tax as will the dividends paid to shareholders. If Frank chooses to form an LLC as the foundation for his franchise, the company will not be taxed as a separate entity but its members must report profits and losses on their individual tax returns. For Frank’s purposes, forming a chain-style franchise of exterminating businesses throughout the country provides the best way to present a uniform service and product to consumers, maintain control of...