The Complete Guide to Franchise Corporate Structure in Canada

How to use HOLDCO, OPCO, and a Family Trust to protect your assets, minimize tax, and build a multi-unit franchise business the right way — before you sign anything.

By Rob Lockie | CAPC Financial | CAPC

Every year, hundreds of Canadians sign a franchise agreement and begin one of the most exciting chapters of their professional lives.

And every year, a significant number of them sign that agreement in the wrong corporate structure — a mistake that can cost them tens of thousands of dollars in avoidable tax, leave their personal assets unnecessarily exposed, and make expanding to a second location far more complicated than it needs to be.

The frustrating part? This is almost entirely avoidable. The right structure costs relatively little to set up at the beginning. Unwinding the wrong structure later — if it can be done cleanly at all — costs far more.

This guide explains the corporate structure that experienced franchise accountants recommend for Canadian franchise buyers: the HOLDCO/OPCO/Family Trust model. I'll walk through what each entity does, why the structure matters, and — critically — why it needs to be in place before you sign your franchise agreement, not after.

Why Corporate Structure Matters More Than Most Franchisees Realize

Ask most prospective franchise buyers about corporate structure and you'll get one of two answers: "My lawyer is handling it" or "I'm setting up a corporation."

Both answers suggest someone else is thinking about this, or that the decision has already been made without much deliberation. Neither is a great sign.

The corporation you set up to buy your franchise isn't just a legal formality. It determines four things that will shape your financial life for the next decade:

→ Asset protection: How well your personal wealth and family assets are shielded from business liabilities

→ Tax efficiency: How much of your franchise income you keep versus how much you hand to the CRA

→ Expansion flexibility: How easily you can add a second or third location without restructuring from scratch

→ Exit value: How much of the sale price you actually pocket when the time comes to sell

A single operating company — the "just set up a corporation" approach — technically addresses none of these four things well. It works, in the sense that the business can operate. But it leaves significant value on the table.

The three-tier structure — Family Trust, HOLDCO, OPCO — addresses all four, and does so most effectively when it's established before the franchise agreement is signed and before the business has accumulated any meaningful value.

The Three-Tier Structure: An Overview

Before diving into each component, here's how the full structure looks:

Each tier serves a distinct purpose. Together they create a structure that is greater than the sum of its parts — protecting operating risk at the bottom, accumulating wealth in the middle, and distributing it tax-efficiently at the top.

Let's look at each component in detail.

OPCO: The Operating Company

What it is

OPCO — the operating company — is the entity that actually runs your franchise business. This is where:

• The franchise agreement is signed
• Your employees are hired and paid
• Your revenue is collected
• Your royalties and marketing fees are paid to the franchisor
• Your day-to-day operating expenses are incurred
• Your operating risk lives
• Inject capital into a new OPCO (OPCO #2) that will operate the second location
• Own shares in OPCO #2, creating a clean portfolio structure
• Provide intercompany loans between operating entities
• Receive dividends from multiple OPCOs and accumulate them in a single protected entity

The key principle: keep OPCO lean

The fundamental operating principle of the HOLDCO/OPCO structure is that OPCO should be kept as lean as possible from an asset perspective.

This means paying yourself a reasonable salary from OPCO — enough to live on and optimize your personal tax position — and then paying dividends from OPCO up to HOLDCO on a regular basis. The goal is to avoid letting cash and retained earnings accumulate in OPCO, where they would be exposed to business creditors.

Think of OPCO as the engine room of your business. It generates the revenue. But the wealth that engine creates should be moved upstairs as efficiently as possible.

HOLDCO: The Holding Company

What it is

HOLDCO is the holding company that sits above OPCO. It owns the shares of your operating company and serves as the wealth accumulation and protection layer of your structure.

The intercorporate dividend — the tax mechanism that makes this work

When OPCO pays a dividend to HOLDCO, that dividend flows between Canadian corporations tax-free under the intercorporate dividend rules. This is the tax mechanism that makes the HOLDCO/OPCO structure so powerful.

Without this structure, profits that stay in OPCO are eventually taxed when you draw them out personally. With the structure, profits can be moved to HOLDCO tax-free and then deployed strategically — either invested, used to fund expansion, or distributed in a more tax-efficient manner over time.

HOLDCO as your expansion engine

For franchise buyers with ambitions beyond a single location, HOLDCO becomes the vehicle through which expansion happens.

When you're ready to open a second franchise location, HOLDCO can:

This is how multi-unit franchise operators structure their portfolios. Each location operates in its own OPCO, insulating the liabilities of one location from the assets of the others. HOLDCO sits above all of them, accumulating wealth from the entire portfolio.

HOLDCO as your asset protection vault

Every dollar that moves from OPCO to HOLDCO is a dollar that is no longer exposed to OPCO's creditors.

If OPCO were to face a significant legal judgment, lease liability, or financial failure, those HOLDCO assets — accumulated over years of regular upstreaming — are protected. A creditor of OPCO cannot reach through the corporate veil to HOLDCO's assets simply because HOLDCO owns OPCO's shares.

This protection is not absolute — there are scenarios where courts have looked through corporate structures, particularly where there is evidence of fraud or the structure was specifically designed to defeat an existing creditor. But for the ordinary commercial risks of running a franchise business, the HOLDCO structure provides meaningful and legally recognized protection.

The Family Trust: The Wealth Distribution Layer

What it is

A Family Trust (specifically, a discretionary inter vivos trust) is a legal arrangement in which a trustee holds assets for the benefit of one or more beneficiaries. In the franchise structure, the Family Trust sits above HOLDCO — it owns the shares of HOLDCO, rather than you owning them personally.

You typically act as the trustee of the family trust, meaning you maintain control. But the beneficiaries — your spouse, adult children, sometimes parents or siblings — hold the economic interest in those shares.

Income splitting: the annual tax saving

The trust's most immediate benefit is income splitting. Each year, the trustee (you) can decide how to allocate dividends from HOLDCO among the trust's beneficiaries.

If your spouse has little or no income, dividends allocated to them are taxed at their marginal rate — which may be significantly lower than yours. The same applies to adult children who are in lower tax brackets.

The Lifetime Capital Gains Exemption — the exit multiplier

This is the element of the Family Trust structure that has the most dramatic impact on long-term franchise wealth — and the one that is most frequently overlooked until it's too late.

Canada's Lifetime Capital Gains Exemption (LCGE) currently shelters approximately $1.25 million per individual on the sale of qualifying small business corporation shares. This means that if you sell your franchise business and it qualifies, the first $1.25 million in capital gains is exempt from tax — for each individual who holds qualifying shares.

A single shareholder has access to one LCGE.

A Family Trust with four adult beneficiaries — you, your spouse, and two adult children — each holding shares with qualifying LCGE eligibility has access to four exemptions.

The critical requirement: the LCGE only applies to shares that have been held for the required period and meet the qualifying small business corporation criteria at the time of sale. This means the trust and the share ownership structure must be established well in advance of any sale — ideally from the beginning.

The Most Common Mistake: Building the Structure Too Late

The HOLDCO/OPCO/Family Trust structure is most valuable — and least expensive to implement — when it is established before the franchise is purchased, before the shares have any value, and before the business has accumulated any retained earnings.

Here is what happens when franchisees try to implement this structure after the fact:

Scenario 1: The single-OPCO owner who wants to add HOLDCO

The business has been running for three years. There is $300,000 in retained earnings sitting in OPCO. The owner now wants to introduce HOLDCO.

To do this properly, shares in OPCO need to be transferred to HOLDCO. If those shares have increased in value — which they have, because the business is profitable — that transfer may trigger a capital gain. A section 85 rollover can defer the gain, but it requires proper legal and accounting work, and the window to use certain mechanisms effectively may have closed.

Scenario 2: The established franchisee who wants to introduce a Family Trust

The franchise has been operating for five years. It is now worth $1.5 million. The owner wants to introduce a Family Trust so that family members can access their own LCGE on an eventual sale.

The problem: if HOLDCO shares are now worth $1.5 million and the owner wants to gift or sell those shares to a trust for the benefit of family members, they are potentially triggering a significant tax event — or locking in the share value at $1.5 million for trust beneficiaries, meaning their LCGE only applies to appreciation above that amount.

An estate freeze can address part of this — the owner's shares are frozen at their current value, and new growth shares are issued to the trust. But the tax and legal complexity, and cost, of doing this mid-business-life is significantly greater than doing it at the start.

What to Ask Your Accountant Before You Sign

Not every accountant who works with franchise businesses thinks at this level. Many will set up a single corporation, file your returns accurately, and serve you well in the compliance sense — without ever raising the structural conversation.

Here are the questions to ask before you commit to a structure:

The Structure in the Context of Canadian Franchise Financing

One practical consideration that franchise buyers often raise: does using a HOLDCO/OPCO/Family Trust structure affect your ability to secure financing?

The short answer is: not negatively, and in some ways positively.

Canadian lending programs like the Canada Small Business Financing Loan (CSBFL) are available to the operating company — OPCO — regardless of the corporate structure above it. Lenders evaluate OPCO's financials, the franchise brand, and the personal guarantees of the principals.

A well-structured HOLDCO/OPCO arrangement can actually strengthen a financing application in the context of expansion — a HOLDCO with accumulated retained earnings demonstrates financial stability and can provide additional security or equity injection for a second location.

What matters to lenders is the strength of the operating company and the credibility of the business plan — not the corporate structure sitting above it. Provided OPCO is properly capitalized and has clean financials, the HOLDCO and trust above it are largely invisible to the lender.

Multi-Unit Expansion: What the Structure Looks Like at Scale

For franchise buyers who intend to build a multi-unit portfolio, the initial structure becomes the blueprint for everything that follows. Here is what the structure typically looks like as it scales:

The pattern is consistent: each new operating entity is clean, self-contained, and connected to HOLDCO. The trust provides the income splitting and exit optionality throughout.

Before You Sign: The Conversation Worth Having

Buying a franchise is one of the most significant financial decisions most people will make. The brand you choose, the location you negotiate, the financing you secure — all of these matter enormously.

But so does the structure you use to hold it all together.

The HOLDCO/OPCO/Family Trust structure is not exotic tax planning. It is standard practice among sophisticated Canadian franchise buyers — the ones who go on to own multiple locations, build genuine wealth, and exit on their own terms.

Setting it up correctly at the beginning is relatively inexpensive. Setting it up correctly after years of operating in the wrong structure is far more costly — in tax, in legal fees, and sometimes in opportunities that can no longer be recovered.

If you are currently evaluating a franchise purchase and want to talk through the right corporate structure for your specific situation, CAPC Financial offers a complimentary pre-purchase consultation for prospective franchisees.

No obligation. No sales pitch. Just the right conversation at the right time — before it matters most.

Important note: This article is intended for general informational purposes only and does not constitute tax or legal advice. The tax rules governing corporate structures, Family Trusts, and the Lifetime Capital Gains Exemption are complex and fact-specific. Always consult a qualified Canadian Accountant and legal counsel before making any structural decisions.