Is it possible to setup an LLC like a franchise and charge members for exclusive use of company's IP in a member's territory.

Asked over 1 year ago - Tampa, FL

I own a premium domain name and vanity 800 number that businesses would be very interested in controlling in their marketing area. I looked at a leasing scenario, but businesses I spoke with do not like being at the mercy of a leasor because they will be investing a considerable amount of money promoting the leased number and domain as their own within their territory. A Franchise approach is costly to start-up and maintain.

So what if I modified our existing LLC to accommodate a special class of members who...
- owns a piece of the company
- could vote on issues that effect their use of the IP
- pay a monthly fee to the LLC
- could sell their interest to another Member or approved third party who becomes a Member
- would not be entitled to LLC profits

OR Is a trust a better way to go?

Additional information

I understand the issue fiduciary duty Charles mentioned below. How to best accomplish/satisfy this issue is why I mentioned a Trust in my original question. Any ideas are welcomed.

What about security Laws... I'm guessing charging members a monthly fee creates an issue(i.e., what happens if they stop paying). Maybe a better way is to set it up as a contribution verse a fee that can be paid over time. but this approach has an end(fulfillment) date and so a fee would eventually have to take it's place to cover expenses to insure fiduciary duty is maintained.

What about the condition that these special interest Members are not entitled to any LLC Profits? Does this present a problem?

I appreciate any help with any of these questions as I want to be prepared to ask the right questions and choose the right attorney.

Attorney answers (3)

  1. Charles Richard Perry


    Contributor Level 16


    Lawyers agree


    Best Answer
    chosen by asker

    Answered . You need to be careful with this idea. I see potential securities laws and fiduciary duty problems lurking here.

    Structuring this with a good business lawyer is essential.

  2. Michael Leo Potter


    Contributor Level 19


    Lawyers agree


    Answered . A Limited Liability Company ('LLC') makes sense in your situation. The facts you present warrant working with a sophisticated Business Law attorney to make sure you get it right (legally and financially) the first time. See under Find-A-Lawyer. Good Luck on your Business!!

  3. R. Russell O'Rourke

    Contributor Level 13


    Lawyer agrees


    Answered . I agree with my colleagues on this, yes it can be done and even yes it can be profitable. You can do a similar thing with trade names and telephone numbers. I know of someone who is doing this very successfully with residential plumbers.

    Before you do this, though, you need to hire a local lawyer who practices in business and franchising to give you guideance and get it done right the first time. Do it incorrectly and you will be paying for years.

    For the older ones of us here, it is like the old Fram Oil Filter commercial, "you can pay me now or you can pay me (much more) later." As Michael suggest, check Avvo for a good reference.

    Good luck

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