Legal Structure of Business

Legal Structure of McDonald's Corporation

There are many different categories of business in the world today. McDonald's brand franchisees operate as part of a corporation. The company, comprised in part of restaurants run by independent entrepreneurs, is currently considered one of the worlds most successful and largest franchising companies every created. Seventy percent of McDonald's restaurants are owned and operated by independent owners.

This corporate business structure has resulted in substantial opportunities for individual business owners and for the corporation as a whole. The legal structure of McDonald's is discussed below, as well as the advantages and disadvantages McDonald's corporation has over other legal business entities. Though McDonald's corporation operates slightly differently than other corporations in the world today, it remains one of the world's leading retailers, a testament to its strong legal structure.

Legal Aspects Of A Franchise

McDonald's successfully operates as a franchisee corporation. There are many legal components of a franchise agreement. A franchisee must negotiate contractual points, address trade secrets, limit personal liability, establish a trade name and learn about state statutes (Obringer, 1). For an independent operator to own a McDonald's he or she must first qualify to own a conventional franchise, meaning they must have roughly $175,000 worth of capital (Obringer, 1).

The costs of opening a restaurant exceed $400,000 dollars, and an owner has to have forty percent of these funds initially. McDonald's first assessed a franchisee fee, then engage in rigorous training to learn the ins and outs of McDonald's service quality standards, formulas and specifications. As a bonus, once training is complete you can operate in a pre-selected location with a completed exterior. The independent owner does have to purchase interior supplies and decor. The owner also pays McDonald's 4% of monthly sales each month and a flat rent or rent based on a percentage of sales.

Thus far McDonald's franchising system has proven successful. The company has a globally branded name and is renown as the world's leading food service retailer. The company currently owns restaurants in 119 countries and serves more than 47 million customers every day (FranchiseOpportunities.com, 1). The company has adopted the motto that a Corporation can be successful only if the franchisees that operate under it are successful. Thus the company works hard to build relationships with owners, operators, employees and suppliers. The company's success is based on that of its business partners.

It is important when starting a company an individual limit their personal liability for paying debts and taxes. Understanding legal structures helps this process.

Advantages and Disadvantages Incorporation

There are multiple types of corporations like McDonald's. AC-corporation creates a legal entity that is separate from an individual owner. A legal entity can conduct business on its own. The benefits of a C-corporation status are many, and include no liability for shareholders, simple structure for raising capital, and ownership that can easily be exchanged from one person to another. Disadvantages however, include double taxing (owners have to pay taxes twice), higher administrative set up expenses and additional state and federal regulatory requirements that must be adhered to (Molnar, 1).

An S-Corporation on the other hand, like a C-corporation, is taxed just as a sole proprietorship, thus owners only have to pay taxes once and shareholders aren't personally liable for corporate expenses (Molnar, 1). The biggest disadvantage however is the administrative expenses for set up and maintenance can be high, and there are restrictions regarding ownership (Molnar, 1).

Advantages and Disadvantages Sole Proprietorship

A sole proprietorship is a legal structure that makes no clear or legal distinction between the business owner and the business (Molnar, 1). Thus the owner takes on all the liability associated with conducting business. There are some advantages of a sole proprietorship. For one, the costs associated with administrative setup are low; the owner only has to pay taxes once and there are few state and federal legal requirements an owner must follow (Molnar, 1). However, the owner is personally liable for any claims against the company. An owner may also have trouble raising capital for the company. This would hinder an owner's ability to own a McDonald's, and put the owner at too much risk for personal liability if he owned a McDonald's.

Advantages Disadvantages Limited Liability Corporation

A limited liability partnership provides some protections a sole proprietorship does not. It is a good choice for many small businesses that plan to employ others. In a LLC, like a sole proprietorship, the owner only has to pay taxes once on his or her personal tax return, and liability can be limited (Molnar, 1). The disadvantages however, include more stringent administrative loopholes and necessary filings that may require an attorney's guidance. In addition, general partners involved in the company still have personal liability. General porters operate the business and thus assume liability.

Of these corporations, the LLC is the most popular as the LLC shares many similarities with S-corporations without the expense. That means owners are protected from personal liability. They do however, have a limited life of only 30 years, thus if you plan to run the business for many years an LLC may not be advantageous. LLC's also generally pay more self-employment taxes that S-corporations do (Molnar, 1).