Legal Question in Business Law in Massachusetts

Franchise and s-corp

I currently have an s-corp that was set-up to operate a franchise, so it's xyz, inc. dba.

The franchise opportunity turned out to be a mistake. I have few sales in the last 20 months and am in a lot of personal credit card debt. Bankruptcy may be in the cards. I want to close the s-corp because it's expensive to keep going, with annual reports fees etc. Can I close the s-corp and keep the franchise agreement, operating as a sole-proprietor?

The reason for wanting to keep the franchise is that the new business will likely generate sales for the franchise, which I�ve been unable to do. I am willing to shut down the franchise if needed. If I do declare bankruptcy my attorney who I�ve consulted about my debt says the court could sell the s-corp for its value-cash flow and business contacts. There is no cash flow and few contacts.

I have another business venture that I'm entering into with a partner. The sales are already there. There is no non-compete issue. I will be partners in a separate LLC for that.

I was hoping you could tell me where the red flags are.


Asked on 3/08/07, 12:01 pm

2 Answers from Attorneys
Herbert Cooper Law Offices of Jameson & Cooper

Re: Franchise and s-corp

This really is too complicated to answer without referring to the documents themselves. Additional information is needed, such as whether the franchise agreement permits the change, whether the corporation is a debtor and whether the shift of the agreement would in any way impair existing creditors of you or the corporation. This really is a situation where you need to consult directly with counsel.

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Answered on 3/08/07, 12:31 pm

Re: Franchise and s-corp

First, your bankruptcy attorney will tell you that your interest in the LLC as well as the Sub-S are assets that can be sold. You may be able to keep the franchise as a sole proprietorship it will depend on the terms of the franchise agreement. In addition by filing bankruptcy you may be in violation of the agreement itself.

Good Luck

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Answered on 3/08/07, 12:45 pm


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